Many marketers think they understand consumer behaviour. But do they? They certainly need to! It is a big call to try and change or influence consumer behaviour without understanding its antecedents.
Did you know the following?
Leverage the power of competitive sentiment and fear of loss to cause a consumer to pay a premium for your product.
Harvard Universities Max Bazerman generated $17,000 for charity – auctioning $20 bills to his students. Students were asked to bid over time for a $20.00 note, knowing that they are in a competitive auction and that all profits generated by the auction would go to charity. One student bid and paid $204 for a $20 bill. This study has been replicated many times.
Other psychologists have also auctioned off $20 bills, and in most cases, while the bidding started at $1.00, it invariably rose to $20 and then $21 – and in some cases rose to as high as $500. Wharton management professor Adam Grant, who plays this game in consulting sessions, says a military officer once paid close to $500 for a $20 bill.
Why on earth would anyone, let alone many people, bid more than $20.00 for a twenty-dollar bill?
The answer is that students responded, unknowingly, to the power of competitive sentiment and the fear of loss. Their fear of missing out clouded their judgement and caused them to pay more for the $20.00 than it was worth.
Leveraging competitive sentiment and or the fear of loss can cause consumers to pay a premium.
Embrace psychological pricing including the completely irrational predisposition of consumers to be attracted to pricing that incorporates the number nine.
MIT researchers had a national mail-order company mail different versions of their clothing catalogue to randomly chosen customers at varying price points. It was found that, among other things, more units of a dress sold at $39.99 than either – $44.00 or $34.00.
Why on earth would consumers buy more at $39.99 than $34.00 and why would few syllables make a price seem lower and therefore more attractive?
We have all seen prices like $9.99 used to attract purchasers by creating the impression that the product is competitively priced. Many have also commented, or at least thought, that this is ridiculous – but the fact is it works – at least with low to mid-market products. But that fact is, as irrational as it might be – consumers have a perception that the number ‘9’ means – cheaper.
Responding positively to the number ‘9’ might well be irrational, but it is certainly predictable and robust – at least with lower to mid-market products. Research suggests that at the quality end of the market – rounded prices – like $60.00 – can suggest quality – but this is a subject for another blog.
The critical point here is that while human behaviour is often irrational it is also almost always predictable.
Price your product higher than that of its direct competitor – leveraging the power of price to create the perception of a premium product category.
Software giant – Salesforce has consistently used ‘price skimming’ and premium pricing to drive both sales and markings – with the higher price (rarely leveraging the ‘9’ effect) driving the perception of quality. Salesforce uses premium pricing across all product categories and ranges.
Leveraging premium pricing, Salesforce has used quality to help it become a dominant player in the SAAS market.
Research and practical experience suggest that premium pricing can be used to push a product into a higher’ product category’ where it no longer competes with the lower-priced options. Two consumer-oriented businesses that have used this strategy very effectively are:
- Sony – selling a Walkman for $3000 while other players were as cheap as $200.
- Apple – which has consistently priced its products higher than its competitors.
Why on earth would a consumer pay more for one product that the other when in practical terms there is little difference between them?
The fact is, consumers, don’t understand the practical differences between the various competitive products – and indeed, often view the product with the premium price as being in a different category to cheaper options. They are using price as a measure of quality.
With the right product presented in the right way – a premium pricing model, involving higher margins, can also drive unit sales.
To create the perception that a price is competitive, avoid the use of punctuation when presenting the price to your target market.
As curious as it might seem, a study found that a product with a price tag reading $1499, significantly outsells a product with a price tag reading – $1,499. This and other studies suggest that consumers view – or interpret $1499 as less than $1,499.
Why on earth would a consumer perceive a price as less when it is marked $1499 than when it is marked – $1,499? That fact is we don’t really know – although researchers have suggested that it is because there are 10 syllables in $1,411 and just 5 syllables in $1411.
Be that as it may – research have found time and again that punctuation can affect the perception of a price point. Punctuation tends to increase the perception that a price is high. It is one of a plethora of simple factors that can impact the consumer’s perception of a price.
Because studies like the one referred to here have been replicated and supported with empirical evidence, it is safe to say that consumers’ behaviour while again irrational is entirely predictable.
While consumers often behave irrationally to the price presentation, they also act consistently and predictably.
Resist the temptation to use a large font when promoting a ‘special’. The smaller the physical size of the font – the higher the perceived value.
How often have you seen a price tag or advertisement with the ‘standard’ price in a small font, next to the ‘discount’ price in a large font? Often, I suspect. This is a traditional approach to demonstrating just how cheap the discounted price is. As it turns out, research suggests that this is the wrong approach for making the discount price appear attractive. The ‘literal human brain’ uses the relative size of the folds as an indicator of the price’s attractiveness.
Research has demonstrated time and again that the effectiveness of a discounted price is enhanced significantly, where the ‘standard’ price is presented in a large font, and the ‘discounted’ price is shown in a small font.
In this case – size matters – but in reverse. The smaller the discount price font was relative to the standard price font – the more attractive it is seen to be.
When presenting a price designed to emphasize a discount – make the standard price large and the discounted price small.
All of these research findings highlight how irrational consumers are. The fact that all of these experiments have been replicated – highlights that while irrational, these behaviours are also predictable – a point made by Dan Ariely in his book, Predictably Irrational. When it comes to price and many other variables, consumers do not necessarily behave in a manner. Economists will consider rational, but this behaviour tends to be predictable and generally manageable.
To market cost-effectively, it is important to understand and embrace the drivers of human behaviour that cause human beings to think and act as they do. It is just as important to know how you can leverage these and other counter-intuitive behaviours – or counter the adverse effects they can have on your marketing’s success. The fact is – marketing is (or should be) the business of:
- Applying psychology and neuroscience to manage human behaviour to achieve a social or commercial objective.
Psychology is, of course, the business of understanding human behaviour and when applied with neuroscience to the business of marketing, helps practitioners (or marketers):
- Cost-effectively manage human behaviour to achieve a social or commercial objective.
The application of psychology and neuroscience to consumer behaviour management can significantly reduce the cost of marketing and drive a higher return on investment through higher conversion rates, average sales per customer, and margins.
Just as a psychologist can influence the behaviour of a patient by leveraging an understanding of how that patient thinks – so marketers can cost-effectively influence a consumers behaviour by leveraging a superior understanding of what those consumers believe., Therefore, marketers need to understand or have access to the best possible knowledge of consumer behaviour.
The bottom line here is that the starting point of any great marketing campaign is a sound understanding of the drivers of consumer behaviour and the most cost-effective strategies for causing members of your target market to behave in a consistent way with the achievement of your objectives.