In a competitive market, every slight advantage is important. SAMUEL ORD explores the fascinating world of the psychology of retail pricing strategies.
When retailers face intense competition to capture the attention of consumers, every little edge becomes critical.
The increasing importance of product display is noteworthy, as is the significance of pricing online because the consumer is far from the product itself.
Consumers are typically presented with a product image, description, and price. This is the only information retailers can provide online – so getting it right is crucial.
With that in mind, it should come as no surprise that the psychology surrounding pricing is a treasure trove of intriguing ideas.
When understanding what makes consumers ‘tick’ in terms of price, research constantly unearths new edges and advantages that can tip the scales in favour of one retailer over another.
It can be as simple as the placement of a comma!
Consumer pricing theories and strategies evolve; however, the mission remains the same: converting a dismissive ‘no’ or an apprehensive ‘maybe’ into a confident ‘yes’
The advice can sometimes seem contradictory, and specific nuances must be considered regarding pricing strategy for jewellery retailers.
Jewellery is a luxury product – not a necessity – with emotional and cultural connotations. As a result, what’s known as ‘premium pricing’ tactics are usually applied.
While the strategy can vary from company to company, broadly speaking, the purpose is to emphasise the exclusivity and quality of the products with high prices.
Premium pricing isn’t a strategy used exclusively for luxury products.
For example, Apple rarely offers discounts to avoid the perception that its smartphones and computers are inferior to others on the market.
Other examples of premium pricing are found in luxury clothing and footwear, such as Louis Vuitton. The belief around the use of round numbers is intriguing.
When products are priced with odd numbers, such as $799.99, consumers infer that this represents savings.
Conversely, round numbers, such as $800, reinforce luxury and exclusivity.
Pricing psychology is a topic with which I became acutely aware during my first year with Jeweller while researching a story about the use of price tags in jewellery stores. The mixed answers took me aback.
Putting themselves in their customers’ shoes; many suggested that jewellery should always be visibly priced.
It eliminates the hassle of finding a staff member and asking them for the price, saving salespeople time as they do not have to look for the answer.
Perhaps more importantly, it removes the possibility of a customer asking for the price of a piece that is out of their budget, which could be embarrassing.
On the other hand, some retailers felt that price tags diminish the perceived value of jewellery.
Instead of consumers selecting something based on interest, they’re encouraged to ruminate on the ‘bottom line’ and little else.
An article I recently read looked at the nature of commas on price tags and the subtle impact this can have on consumer perception.
Phonetic size is important when prices are spoken and read silently, which many people do.
For example, if a diamond ring is priced at $1,950 – with the comma included – it’s read as ‘one thousand, nine hundred and fifty.’ When priced at $1950, the same ring is read as ‘nineteen fifty’.
Consumers consider items with a shorter phonetic size, without the comma, sound less expensive than those that are longer phonetically because of the comma.
Another article discussed the importance of sorting prices from highest to lowest. The first price a consumer sees becomes the ‘baseline for comparison’.
For example, a customer visiting your website is presented with a $2,000 diamond ring and then a $2,400 diamond ring.
Consumers psychologically feel that they are ‘losing’ the ability to pay a lower price.
Perhaps the first option was the best available, and for their wallet, it’s all downhill from here.
When products are presented in a decreasing sequence – most expensive to least expensive – it has the reserve effect.
The perception is that quality is decreasing, and the focus is shifted away from trying to spend less money. As a result, the article argued that customers feel inclined to purchase something more expensive.
The example given was a menu at a bar; however, the same principles could easily be applied to jewellery listed on a website, in a catalogue, and even when displayed in a store.
Another interesting study found that male customers associate the colour red with implied savings, particularly around marketing campaigns. This is likely because red is commonly used for discounting.
This study found that men seem to process advertising ‘less in-depth’ than women and use price colour as a visual representation to judge perceived savings.
It’s also been said that if you’re going to use the colour red when pricing products – it can’t just be on one product!
It singles out that product as inferior to the rest and harms sales rather than increasing them.
Pricing psychology is a fascinating topic; the above examples are a handful of many.
While not all – or possibly none – of the above may apply to your business, it’s something to think about.
At the very least, these types of insights highlight the many unspoken factors that influence consumer decision-making.
Many of these factors impact consumers subconsciously, and chances are your customers aren’t entirely conscious of the subtle reasons why they favour one product or business and not another.
It’s also a reminder that your business is likely communicating with your customers in ways you may have never considered or intended.
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