During recent months I have written a number of articles on pricing. Consumers have always been price sensitive, but seem more price sensitive today than they have ever been, or so we are led to believe.
The new generation X and Y consumers seem to be more price sensitive that older consumers and have driven the price debate for many retailers. I recently worked with a client who was a Gen X and he was adamant that price was a major driver when he went shopping. Although when I challenged him, his perception of pricing was the same as the rest of the population.
The release of the book “Priceless, The Myth of Fair Value and How to take Advantage of it” by William Poundstone [Scribe Publishing] should be essential reading for anyone in retailing as it has some fascinating ideas on how to play the price game. It implies that price is not always the driver we think it is, but there are still game rules we need to apply.
Joseph Blair of Hortitrends in Ireland www.HortiTrends.com recently sent me a press release about Dunnes Stores in Ireland. It related to Valentine’s Day roses and the selling of bouquets of flowers. We all believe that prices go up for this occasion. Dunnes decided to play the price game and promoted “Half Price” dozen red roses from €3.99 . Nothing wrong with the concept, except when you went into the store the cheapest bouquets of roses were €39.99.
It is interesting that both prices contained the same numbers in them, something that I suspect was not planned by accident, perhaps they were hoping nobody would notice. One consumer did notice and complained to the ASCI-The Advertising Standards Authority for Ireland, who agreed this was misleading advertising.
Another store I visited in Ireland put their prices on an arrow going downwards, again giving the impression the price had gone down in price, when in fact it had not. The shape of the price sticker was giving a subliminal message that the product was cheaper. I am not suggesting this is something unique to Ireland, it just happens that the two last examples I have come across come from that country.
Look at Your pricing with new Eyes
The examples above indicate that you do need to look at your pricing with new eyes and using the eyes of the customer. There is more to pricing than taking the buying price and doubling it, something some retailers still use as their pricing strategy.
William Poundstone talks about the different pricing strategies that make a difference to consumer perception. These include:”Charm” Pricing
There are various theories about how “charm” pricing evolved. One theory is that in the USA they used to have the dollar price and for imports from the UK the old penny price. These old penny priced products were considered to be of higher value than the US products and the price often ended in 99, hence 1.99, 2.99, 3.99 and so on. These were called “Charm” prices because they increased sales.
Whether this is the origin or not, research carried out by Kahneman -Tversley in the 1980’s showed a 24% increase in sales when a “Charm” price was introduced.
When scanning was introduced on June 26th 1974 at Marsh’s Supermarket in Troy, Ohio, at the launch of scanning it meant that pricing using a 9 at the end became a lot more easier for retailers to manage.
One of the challenges today is the multitude of choice, both for the retailer and the consumer. It seems every supplier has a variation on a product and thinks it will sell better than the previous identical product from another supplier, but under a different brand.
Retailers need to make life easier for the consumer. Pricing can play a role in this with the good, better and best product strategy. Consumers want choice, but limit that choice to three products that do the same job. In today’s marketplace you may want to consider Super Cheap, Bargain and Premium as three price strategies. I have run webinars on my Members Club on pricing www.johnstanley.com.au. The aim is that the Premium and Super Cheap products are decoys so you can sell more of the bargain product and hopefully at a higher gross profit.
The Bargain product should be perceived as the safe compromise choice for the consumer.
Some handbag shops do this very well by displaying a few very expensive bags with the aim of selling you up to a more expensive bargain bag. This theory can be applied to a wide range of categories on the shelf.
Alternatively you can bundle products together and offer a new price strategy that makes it difficult for the consumer to identify single unit prices. The fast food industry often does this exceptionally well. The perception is that it is a bargain, but in the mix is a loss leader whilst other products have a higher mark up.
One of the most interesting stories on pricing is in William Poundstone’s book; it is the Free 72 ounce steak that is available from Bob Lee at the Big Texan restaurant. His restaurant has become famous as a must stop food outlet when travelling in Texas. The 72 ounce steak costs the customer 72 dollars if they cannot consume it at one sitting, if they can consume it the steak is on the house. A great Non Linear Pricing strategy that many consumers fall for.
The good news for Bob is that he knows most consumers will be unable to consume the steak at one sitting and they will have to pay $72. More than they planned to spend and they hand over the money with a smile on their faces.
The message is there are so many ways to get the consumer to buy roses for Valentine’s Day rather than deceive them with misguided price advertising
John Stanley (CSP) is one of the top 10% of speakers in the world today, an acclaimed retail consultant and WA Entrepreneur of the Year 2009. The author of several marketing, customer service and retail books including the best seller “Just About Everything a Retail Manager Needs to Know”, his company is WA Small Business Champion 2009 – Educational Services. www.johnstanley.com.au
