08 Dec Customer perception of value
As a business owner, you will have to consider what price you put on your services or products. What is the customer perception of value?
This is an area that many
Today we will examine some recent studies that take a psychological viewpoint of this aspect of marketing. Hopefully that you will be somewhat better placed in how to price your own merchandise after reading.
Comparative pricing is not always ideal.
One of the very first steps that many business owners take is to exactly liken prices with that of a competitor. From here they usually undercut the competition and release something that looks like ‘20% cheaper than XYZ brand’.
The issue with this is comparative pricing is not as dependable as people believe. Therefore, it can harm your brand and alter potential customers’ opinion of the product in several ways.
Let’s consider this scenario.
You walk into a pharmacy and there is a poster asking you to try their brand of paracetamol, instead of a well-known brand.
Would you try the own brand?
According to studies you may not go for the cheapest, as it can be perceived as a ‘risky’ choice.
Will it work as well? Will it work as quickly?
Confusion could mean some will leave with nothing at all. Research has revealed that asking consumers to directly compare prices may have unintentional negative effects.
Offering a lower priced alternative in some markets can cause the consumer to question the quality of the item or service being offered. This causes them to by nothing due to a supposed increased risk.
To assess the consequences of comparative advertising a test was carried out revolving around selling CD’s on eBay.
The researchers sold a few top selling albums and started the sale at $1.99.
This CD was then ‘flanked’ with two CD’s that started at 99 cents.
The second listing had flanked the CD with two copies starting at seven dollars.
Time and time again the more expensive CDs ended up fetching a higher selling price than the 99 cents option although the item sold was completely identical in every other way.
It is clear the buyers felt that by paying less they were purchasing an
So next time you consider competing on price remember this study. You may well benefit from explaining how your product is better rather than talking about cost.
Now let’s consider how consumers value time. According to new research “selling time” over money could be the way forward.
According to the General Atlantic Professor of Marketing at Stanford School of business, our experience with a product quickly promotes mindsets of personal nature in which we feel a connection, therefore referring to time in our marketing quickly leads to positive stances and more purchases.
So why would selling time do so much better than saving money?
In an experiment addressing this, a lemonade stand was set up, with two small children in situ so it would look realistic. For the purposes of the experiment the stand had three signs displaying the following messages:
- “Spend a little time and enjoy C&D’s lemonade”
- “Spend a little money and enjoy C&D’s lemonade”
- “Enjoy C&D’s lemonade” (neutral sign)
The customer could choose how much to pay for the lemonade, providing it was between $1 and $3.
Even using a simple children’s stand the results were clear. The sign that alluded to time attracted twice as many customers who were willing to pay twice as much for the product.
To ensure the test was fair and was not biased because children were involved (i.e the cute card was played) the test was repeated using students and iPods.
This time the test was made up of two questions.
- “How much money have you spent on your iPod?”
- “How much time have you spent on your iPod?”
Considering the results of the previous test it will be no surprise that students reacted much more favourably towards the time question.
Not content with this a third study was carried out, this time using a concert. The gig itself was completely free, but the cost was time. If you wanted to go in you had to wait in a queue.
The questions put forward in this situation were:
- “How much time will you have spent to see the concert today?”
- “How much money will you have spent to see the concert today?”
Even when placed in this setting, where time was the expense, asking about time increased positive attitudes about the show.
So does this mean our relationship with time is more important that that with money? I would say yes, after all, every second that passes is a moment lost, whereas we always have the opportunity to earn money back. As people, how we spend time says so much more about us than how we spend our money.
The marketing profession as a whole needs to come to realise that the meaning behind services and products are more important than the cost, in the most part.
There appears to be one exception to the rule – prestigious products. Consumers who buy expensive luxury items such as sports cars and designer watches seem to value the product and how they feel it reflects on them for owning it rather than the time spent with the item itself.
So when you next sell a product, factor in time, it seems to make all the difference!
So how about price points?
When pricing your products, you will find that the difference in price between products will significantly affect the value your customer feels they are receiving.
A study was carried out whereby it was noted that there appeared to be three very strange price points:
Product One is a web-only subscription for $
Two is a print-only subscription for $125
Three is a web and print subscription for $125
Obviously, this is entirely nonsensical as no-one would buy product two when
they can get product three for the same price, surely?
This is an interesting study that assesses what would transpire should product two be removed.
The findings showed that product two, although outwardly of no use as it
offered no worth was really valuable.
Why? It ensured that potential customers stopped looking for the cheapest option and instead looked for value.
Customers were looking at the prices and naturally comparing product two and
three which was making product three look like a fantastic deal.
If product two was removed the jump between the two prices was too large, so customers would look at the product and decide they didn’t need to upgrade. Everyone started looking at going ‘cheap’ – not the type of customers you are looking for.
However, with product two in place almost everyone feels like they are getting real value for money which means many upgrade, even if they don’t really need it! They feel that the premium price is justified as they are getting much more value.
With 2020 just around the corner you may well be doing what I have this week… working out forecasts and budgets. With the average digital marketing budget set to increase by 4.3% next year, perhaps you need to get ahead of the game?
Keep reading to see our predictions for the New Year and how you should invest:
Content is (still) king.
As Google proves itself time and time again when connecting search enquires, we still maintain that you should be investing in content marketing. By educating your target market now, you will reap the rewards in the future.
Let’s get video.Video is going to get even bigger. Essentially everyone wants to make a video that will go viral, so expect even more high quality, interesting videos coming to light.
Marketing gurus with a background in psychology will be the only people that matter… tell your father that!
A running topic through the prophecies above is the increase of the up-to-date tech-savvy customer. Should the above predictions come to fruition the emphasis will lay on companies to take customers demands seriously and confirm their business is set up to meet or exceed expectations.
Those that accomplish this this will profit from excellent brand awareness, better-quality customer conversions and augmented customer loyalty.
If you need a hand with your 2020 digital marketing plan, don’t panic, just get in touch today.