Here is a hard truth: boring products make the customer focus on the price tag.
Let’s unpack this a little bit: previously we suggested how higher prices might actually increase customer satisfaction and the perceived quality of your product – something called price-quality signalling. This is because a ‘higher-than-expected’ price will nudge customers to try to understand why the product is so expensive – and in the process of answering this question they discover all the cool qualities they like about it.
So far so good – but what if your customers are just not psychologically involved enough to try to ‘justify’ your high prices?”?
What if your product is just really boring, uninspiring and non-sexy – like banking or insurance?
When your customers are just not that into you…
To the average consumer, some product and service categories are just not ‘that interesting’. They have no personal interest or enjoyment out of buying them. No matter how ingenious your insurance product is, it’s not going to be either pretty, tasty or exhilarating. When customers see a ‘higher-than-expected’ price in these product categories they don’t feel compelled to understand why it’s expensive. They just press the ‘exit’ button.
But if the purchase is a necessity purchase – like banking or insurance – then the customer is forced to make a choice. And since the customer finds no appeal in interacting with your product (or the product of your competitor for that matter) she never gets to a point where she compares her options based on actual attributes or merits.
Instead she becomes insecure about whether the price fairly reflects the value she gets and simply picks the cheapest one.
This – to us – is exactly why a lot of B2C financial services like insurance and banking is so often behaving like a commodity in the marketplace with the lowest cost provider winning market share. It’s not that the quality is the same: it’s that the average customer would rather have her nails pulled out than having to read the Terms & Conditions of her insurance products. So quality never gets a chance to enter into the decision process of the customer in the first place. It’s just too damn boring.
What you absolutely should not do (… unless)
Let’s start with what you shouldn’t do: lower your prices. It’s a sure-fire way to 1) gain market share and 2) kill your business. You are pulling the profit-plug out of the market-bath tub you are in. Some industries (like airlines) have fallen for this and have forever priced themselves below their true cost of capital – to the benefit of society and the detriment of their shareholders.
(One possible exception, of course, is if you are the low cost producer in the market and can expect to keep that position: then you just price 2-6% below the second-cheapest and start broadcasting your prices like there is no tomorrow. Handle with care.)
But isn’t there a way to make your customers interested in your (boring) products?
Sorry, but no. And the sooner you realise it and get over it the better. They’ve tried to make financial services exiting for about 400 years (because it’s just so damn important to your lives!), but they failed. Chances are that you will too.
So what can you do?
What you can do depends on where you are in your organisation:
If you are the boss: then find a solid positioning in the market – by being the local bank in your community or by being the preferred insurer for farmers or the one that’s ‘full service‘. Pick one and stick with it. If you work hard to be known for something, then this something will be what the customer sees and they will basically buy your product because of it (and not your competitors lower priced option). This is hugely important for every business out there… and is also for another article.
If you are the not-boss and pricing and positioning is basically handed down to you from the upper echelons of management then the only tool you have left is to make your couldn’t-care-less price sensitive customers perceive your prices as lower (and more fair) than they perceive them now.
“How is that possible?”
I hear you ask.
Introducing: Visual Illusion in Price Presentation
There exists a vast amount of research about how the eye perceives prices. Basically, it has to do with how we as people, cognitively weigh, associate and combine different types of impressions.
The visual impression is of course, only one out of many factors which influence the purchase and price willingness of your customers. What works in one category of business might not work in another. Although with this being said, we have identified some efficient tools which seem to perform robustly across different situations and product categories (both online and offline).
Let me take you through 4 of them!
#1 – A ‘smaller price’ is a lower price
Research indicates that customers perceive a price as lower if it is written in smaller sized font. It may sound like a joke but try to think of luxury cars or high-fashion clothing: In half of the incidences, the price is almost invisible. And it works.
Besides lowering the font size, consider deleting any redundant signs such as commas, dots, dashes, and any currency marks or abbreviations in the visual presentations of the price. Removing these will visually make your prices seem smaller and entice your customers to misinterpret the visual ‘shrinkage’ as a numerical reduction. They will, in short, perceive your prices as being lower without you actually lowering them.
In practice, such visual shrinkage may look like this:
#2 – Consider how It’s all relative
It is hard for customers to evaluate the price of a product or service if they have nothing to compare with.
According to research on the psychological perception of physical differences (Poundstone, 2011), people are only able to understand value and prices in comparative terms, not in ‘absolutes’.
To understand how this relates to the visual presentation of your prices, hold on…
According to Harry Helson’s Adaption Level Theory, all human senses adapt to a certain level of stimulus and then register all changes compared to this baseline (Helson 1947). This way, the first stimulus (the base-line) works as a sort of anchor for the interpretations of the input or changes that follow (Bevan 1979).
In other words: people perceive the first piece of information as the most important one and compare everything after to that. They are anchored.
This was for example evident in an experiment by Helson, were he made use of weights and made people lift them. When the test individuals first lifted the lighter weight and then afterwards were asked to describe how a second weight felt like, the second weight being a little heavier, they described the second weight as being ‘heavy’. The essence of this was that if the test individuals hadn’t first anchored in the first (lighter) weight, they wouldn’t necessarily have interpreted the second weight as being ‘heavy’. And vice versa, when the test individuals lifted the heavier weight first, they perceived the ones after, as being ‘very light’.
This, you want to apply to your price presentations.
Many companies list their prices following a presentation of their products and services. If online – different prices may figure during a purchase proces where products are chosen consecutively.
Consider the above experiment with the weights: If you present customers with the low prices first, how will they then perceive the value of your higher priced items?
Also, in general people tend to like structure and avoid complexity. So listing your prices in a random order with the numerical value traveling up and down – just isn’t appealing to most people.
This is what you don’t want to do:
The customer will anchor in Product A’s price of 199,- which is lower than most of the other presented prices. With prices paced randomly, the price of Product B will be perceived as higher than had it been placed before Product A.
Instead of the above, you want to present your prices in a descending order to anchor your customers in the highest price first – enticing them to perceive the next prizes as relatively low. Like the experiment with the weights!
So this is, simply visualized, the presentation order that will compel customers to better accept your prices:
Like the heavy weight, the presentation of the highest price of 7,899,- first will anchor customers and influence them to better accept any of the following (descending) prices B-G.
#3 – Maximize the contrast!
For limited time periods, you might want to offer your customers a lower price on some of your products (while you, of course, slightly increase the price on your most sold items).
When you do this, you want to make sure that your price-sensitive customers really understand that they are getting a great deal.
Research suggests that, when it comes to the visual presentation of price, people tend to misinterpret any great visual difference (e.g. contrasts in color) for a numerical difference (Coulter & Coulter 2005, Coulter & Norberg 2009). This means, that the difference between the sales price and the new price will be interpreted as even greater if you present the two with great contrasts in colour, size of writing, font type, etc.
Placing the prices with greater distance from one-another also makes an influential impact on perception.
To exemplify, if your offer is like this:
Working with visual contrasts, you might change your offer into looking something like this:
In order for your customers to anchor in your sales price (the highest price), place your discounted price to the right of your sales price (Biswas 2013). People (in the Western part of the world) read from left to right and your customers (given that they are Westerners) will therefore anchor in the price furthest to the left.
“But hey! What about the amount the customers save?”
You are right. Your customers like to know EXACTLY HOW MUCH they are saving if they chose to take advantage of your offer. This is where you, again, gain a lot by considering visual illusion tools.
Check out ‘the rule of 100’ …
#4 – The Rule of 100
… Simply argues that if the price of the product that you are discounting is above 100,-, you should write the amount people save and not the percentage saved (Berger 2013).
For example, if you are selling an insurance policy at DKK 3,999 and want to offer price of DKK 2,999 in order to boost sales, then write “Save DKK 1,000” instead of “Save 25%”.
This is based on the psychological argument that people react to the numerical size of the number and are less sensitive to the intricacies of percentages vs nominal amounts. Plainly: The number 1000 is much bigger then 25 – therefore saving 1000 must be better than saving 25.
Also, the saving of DKK 1,oo0 is more relatable for your customers. They have an idea about what they will be able to purchase for 1.000 DKK. Nobody knows what “25%” will buy them.
Also: many people are bad at math!
What I have also visualized here is an even-number saving.
Say that you are able to offer your customers an even higher saving than the DKK 1,000, such as DKK 1,013. However consumers have a tendency to perceive a precise saving (the DKK 1,013) as lower than ‘a round saving’ like DKK 1,000 (Thomas, Simon & Kadiyali 2007). Always go with even numbers if you want the perception of BIG (this is also why the 99,- price feels much smaller than 100,-).
Offering customers big round numbers is a visual tool but also centres on clearly illustrating the value of the discount to the consumer. Odd savings will only complicate your price communication and weaken your overall message (Thomas & Morwitz 2006).
Don’t try not to be boring (you’ll fail).
Don’t lower your prices to compete.
Do get your positioning in your market straight.
Do use visual tools (and other pricing-cognition) to convince your customers that your prices are fair – or low, or … just right.
Is this manipulative? Sure, but only in the sense that it’s methods of communication that will help you to get past the price as an obstacle. You’ll have to visually present your prices in some way after all. So why not use visual tools to market your price to those customers who do not relate to – nor involve themselves enough to – the qualities of your product or service? After all: if the customer has already chosen to look past the value you are trying to deliver and go straight for the price, then you might as well work on making that price as attractive as possible.
If that takes a little extra colour and font switching, then so be it. I say it’s a small price to pay for more price-accepting customers.
Berger, Jonah 2013
Coulter & Coulter 2005
Coulter & Norberg 2009
Thomas, Simon & Kadiyali 2007
Thomas & Morwitz 2006