The psychology of price

Expecting customers to make decisions based on rational thinking often results in lost opportunities and lost sales for all sorts of businesses.

Let’s take a business we can all relate to, a retail store trying to entice customers to buy slow moving stock. Imagine you are this retailer and you ask your staff to prepare the price tickets for your discounted stock. You want to maximise the impact, so which of the two approaches below will you instruct them to use, ‘Option A’ or ‘Option B’?

In Option A the discounted price is the biggest thing on the price ticket. In Option B the old, higher price is bigger.Option A and B Font size difference

If you are like most people, you will opt for Option A. After all, it’s the new lower price you want to focus the customers’ attention on, isn’t it?

Not so according to Bri Williams. She shares an example of a study of price markdowns.  This shows that when the original price was represented in a larger font than the discounted value, it outperformed adverts where the original price was in smaller font than the discounted price.

Why is that?

It’s because the discounted price is literally smaller than the original. Behavioural economists like Bri Williams call this the ‘size-congruency effect’. She says you are better to go with your marked down price in smaller font (Option B) than the conventional stand out (Option A), proving yet again that our assumptions about how best to influence customers can often be incorrect. That’s why you need to read the research, regularly read Jurek's Terrific Tips enewsletter, and test and measure.

There are two things that my colleague Jan Collins and I would pat you on the back for, even if you used Option A above.

  1. You have used price off rather than percentage off. The example above uses a 33% markdown on the previous retail price. Studies continually show that most people cannot calculate a percentage off discount. That’s why price off is far more effective.
  2. Instead of rounding down the price to $6.00 you have reduced it to $5.99. In the customers mind it is now ‘less than $6.00’ making it seem even more of a bargain. I’ve taken you through the psychology of why this works before, in this price points post.

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Jurek Leon is a storyteller, speaker and trainer. Subscribe to Jurek's FREE monthly 'Terrific Tips' e-newsletter at http://www.terrifictrading.com/terrific-newsletter/. Alternatively, email info@terrifictrading.com.