The Psychology of Price

psychology-of-price

“It’s like when a 39-year-old turns 40, the birthday feels like a big deal,” says Robert Schindler, a professor of marketing at UCLA. He’s talking about the effect of prices that end .99, how just a single penny between two larger amounts creates this symbolic buffer in our minds. So we perceive £3.99 as being closer to £3 than £4, just as the 39-year-old man still believes he’s in his mid-30s: it’s both completely irrational and perfectly understandable. Welcome to the world of psychological pricing.

Shoppers have to process a lot of prices, especially online, to the point where it becomes overwhelming. Our memories only process the first couple of digits of a figure at a time so pounds inevitably take precedence over the trifles of pence. The effect is powerful. When a Chicago grocery store dropped the price of margarine from 89 cents to 71 cents it saw sales rise by a modest 65%. But then it lowered the price again, by just two cents, to 69 cents. The result was a sales jump of 222%. Subtracting that single penny or dollar to reveal a pair of nines is a magic trick for retailers, but it can come at a larger price.

What the industry calls ‘just-below’ prices are linked in our minds with special offers and promotions. According to marketing professor Robert Schindler, the format was introduced in the 1870s as a way for retailers to distinguish discounted products from their full price stock. But at some point the just-below prices simply became the norm, sale or no sale. And so, in 1894, James Eaton & Co could assure the public that its $9.99 check suits were ‘Always the Cheapest’ in newspaper adverts that did away with whole number prices altogether. Today, however, certain stores still retain the approach’s original meaning.

Take Nordstrom, by Wikipedia’s admission an upscale fashion retailer. They price their clothes in whole numbers: a pair of swimming trunks can be yours for precisely $152 and a bow tie will set you back exactly $55. There are cheaper places to buy your swimwear but even Nordstrom have clearance sales. Then you’ll see all sorts of prices: a wool fit suit is now $465.65 and a pair of toe cap boots are down to $126.96. The discounted prices are left with ragged edges. So why use whole numbers in the first place? [Read more…]

Customers are for life, not just for Christmas

Christmas Segments from VisualDNAMany brands and retailers face Christmas with both excitement and fear. Excitement for the possibilities of peak, and fear that seasonal discounting may hurt the bottom line.

In the run-up to Christmas, brands and retailers traditionally spend on marketing and discounting via generic festive messages they hope will convert enough potential buyers to beat the competition. But budgets could be spent far more effectively if it were possible to understand customers and prospects – and the Christmas buying experience they’re after.

People engage with Christmas shopping very differently: some have it all wrapped up by December 1, while others are still rushing around like headless turkeys on Christmas Eve. There’s Bargain Hunters who scour the web for the best deals, Family Shoppers who browse and browse to find perfect gifts for their nearest and dearest. There’s The Early Birds who enjoy a clinical Christmas and The Bohemians: those who buy big for a shock and awe season.

Conventional data might reveal what online customers are doing, where and when but it glosses over the fact that every consumer – offline and online – is a living, breathing human being with a lifetime of experiences and a distinctive set of character traits which shape their behaviour. Personality plays a huge role in governing how people respond to products, brands, advertising, promotions, onsite design, selection, pricing and much more besides.

If brands and retailers’ ultimate aim is to reach prospects on an emotional level – for Christmas or at any other time – then personality is vital information for advertisers to segment customers based on who they are, how they’ll shop, and what message will best resonate.

New approaches are now emerging that can provide a much broader picture of each online consumer, including insight into their psychology. As a result, a growing number of brands and retailers are now taking their first steps into a new world of market segmentation based on what truly motivates people and on what drives their purchasing behaviour. Researchers in psychology have spent decades building rich models based on the “Big Five” personality factors – Openness, Conscientiousness, Extraversion, Agreeableness and Neuroticism.

[Read more…]