How can marketing managers nudge consumers to purchase those higher quality goods and services that consumers say they want? Just as “life hacks” are small changes designed to make your life easier, we identify three “pricing hacks,” small tweaks in how retailers present prices to consumers that reduce sticker shock and increase the perceived value of their offerings. Recognizing these “hacks” enables retailers to guide consumers toward better, but more expensive options more effectively.
Upgrade Your Pricing Strategy to Match Consumer Behavior
Three hacks based on behavioral science.
May 28, 2020
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Summary.
Behavioralists are gaining insight into how price affects demand and willingness-to-pay. Just as “life hacks” are small changes designed to make your life easier, the authors identify three “pricing hacks” to reduce sticker shock and increase the perceived value of their offerings. Instead of offering a standard option for “$200” and a higher-quality alternative for “$250”, focus on the difference and offer the high-quality option for “$50 more.” Second, many quality and sustainability attributes are difficult for consumers to evaluate. If a new dishwasher saves 20kWh per cycle, how much value does that provide? The solution here is to translate intangible costs into metrics that resonate with consumers: in particular, dollar costs, which offer a way to reframe the total cost of ownership in a way that is more meaningful for consumers. Third, “stacked” discounts refer to cumulative discounts that are sequentially presented to consumers, for example, offering a 20% “first time buyer” discount, on top of a 15% “holiday weekend sale.” Research shows that stacking multiple discounts is more effective than providing one overall discount.