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That would have been your prize!

To the psychology of the price readiness

To turn the price of a product, you can use many screws. Thomas Ebenfeld from concept m has examined some in-depth interviews with consumers and presented the results.

In fast-moving markets, the price is usually the decisive factor that determines the economic success of the product. It can be observed, however, that the price ranges of similar products within a segment can vary considerably, in confectionery and personal care products sometimes by more than a thousand per cent. This leads to the question of why one manufacturer can take five euros for a chocolate bar while the other does not even dare to call up a sales price of more than one euro.

The answer provides a glimpse into the psychology of price perception and price readiness. What a customer experience as expensive or cheap is not an absolute value. In a known experiment, a customer sees three comparable products standing side by side on the shelf with three different prices. As a rule, the customer prefers the product with the middle price. Why? The „cheap“ product does not match his own status thinking. He thinks it should be a little better, but not too extravagant. Therefore, the trader’s trick is to bring the price of the middle product as far as possible to that of the expensive product in order to maximize the profit margin.

Basically, the price experience arises in a field of forces that is affected by various factors. These include, among other things, how the quality and prestige of a thing are perceived, what signals the brand communication sends out, the experience at the POS (basic shopping ambience and positioning of the article in the store) and the perceived price environment (especially by neighbouring products). From these essential factors form the concrete price experience and the assessment of the customer, with „brought“ aspects and „current“ experience come together directly at the point of sale.

The factors that determine the price experience logically determine the customer’s willingness to pay, that is, what he is willing to pay. High-quality packaging, prestigious appearance and upgrading advertising increase the willingness to pay, as well as friendly advice and a fundamentally high-quality image of the POS and the presentation of goods itself – a glass cabinet is better than a bargain table.

These factors, which manufacturers and traders can exert relatively much influence, are joined by others that largely escape access. These include the personal appreciation for the respective product group as a whole, the assessment of their own economic situation, peer-group exchanges, personal and family traditions („my mother always bought“).

Consumer willingness to pay is the basis for the adequate income of brand owners and retailers: If the customer brings a higher price readiness, the trade can benefit from a higher margin.

On the other hand, the brand benefits in the long run from the „high value“ expressed in the price. This, in turn, stabilizes price acceptance in retail, provided this relationship is handled wisely.

The widespread assessment that the customer acts as a rational „Homo Oeconomicus“, can not be considered on closer inspection. Most consumers know only a few prices exactly and can be guided by the actual pricing of the experience at the POS. That is, if he acts as „Homo Oecenomicus“, then within a narrow framework that is set for him – for example, by the direct price comparison on the shelf.

In addition, the situation is complicated by the fact that the price alone is only rarely decisive for the (positive) perception of a product. Especially in the field of personal care customers want an appreciation, which can be counteracted by discount campaigns. A discount can lead to a dangerous image loss for sensitive, high-quality brands. Consumers think, „maybe the brand is not so good if it is already being sold off“.

Another influencing factor for the price readiness is the larger framework conditions for the experienced ratio of the issue and, in return, for the product benefit available. The cost would include, for example, travel and parking costs and the time that must be invested in the implementation of the purchase project. The other field of benefits includes, among other things, the available variety of the offer, the service around the purchase process, the value of the purchase experience, the availability of the goods and the availability of the POS.

These factors on the three levels of product, brand and POS overall result in a multi-layered motif of conscious and unconscious efficacies that form a personal price propensity. Decisive for customer satisfaction is not necessarily the cheapest price, but rather a suitable ratio of experienced (psychological) value and the price paid for it.

But this also means that adjusting the price on all three levels can be changed. The manufacturer can further develop the actual, factual characteristics of his product, enhance the image of the brand, and work with retailers to make the actual shopping experience at the POS as positive as possible.

Published here by Planung&Analyse on 25.09.2018

Thomas Ebenfeld concept m

For further information please contact:

Thomas Ebenfeld
Managing Partner

2018-09-27T13:23:19+00:00 Blog(en)|

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