Not a penny more

Of all the tactical weapons available to retailers when promoting their wares, the seemingly simplistic ploy of pricing could have more powerful leverage than one would imagine. In the competitive midst of brand power and corporate identity, it appears that there’s more to the humble price tag than meets the eye. While the rational human being is willing to concede that there’s a nonsensical 1c difference between R9.99 and R10.00, retailers know that when it comes to economics consumers have the potential to behave somewhat irrationally when presented with certain triggers. Such as a price tag ending in the digit 9.

Whilst in the first instance retailers use pricing as a direct weapon to influence revenue and profits, they also understand the intrinsic, sometimes incomprehensible, power of pricing to communicate value, product quality and brand attributes. Getting the price ever-so-marginally wrong, albeit in the face of brand-building brilliance, can spell marketing disaster for even the most robust of retailers. In the dog-meets-dog world that is retail marketing, product pricing has evolved into an interesting blend of maths and human psychology, where even the font size on the price tag can send customers into a purchasing frenzy.

The psychology behind product pricing is based on the theory that certain prices can impact consumer emotions and influence, to varying degrees, consumer behaviour. Far from being a coupling of ineffective digits, it’s widely believed that prices ending in .99 can powerfully influence consumer behaviour through a psychological phenomenon called left-digit anchoring. While the thinking, rational human understands that the difference between R8.99 and R10.00 is closer to R1.00 than R2.00, consumers often anchor their focus on the left-hand digit and, through a process of illogical rounding down, believe that the difference is closer to R2.00 than R1.00. Ironically, the illusion is not in the cleverly coupled last digits, but in the first digit.

The influence of fractional pricing extends further in that it leads consumers to believe the product has been marked down to the lowest possible price, explaining why most sale prices end in .99. In fact, an astonishing 60% of prices in advertising materials end in the digit 9, while 30% end in the digit 5, and 7% in the number 0 – drawing researchers to the conclusion that consumers prefer product prices which end in odd numbers.

The psychological relationship between a product’s price-ending and its ability to convert a sale is nothing short of fascinating. While most retailers pitch their regular prices to end in .00 or .50 and their sale prices in .99, Walmart is notorious for ending its sale prices in .98 – a would-be pricing signature of the US retail giant. And while a price ending in .99 may appear attractive when used by popular clothing retailers or large chain stores, this form of price-ending is snobbishly fobbed-off in more sophisticated stores. Pricing trends reveal that high-end clothing stores strongly prefer rounded numbers when it comes to pricing their goods, while sale items are marked with a more dignified and ever-so-subtle .50.

As a mark of distinction and clear separation from the fast-food market, the trend amongst up market restaurants is to eliminate decimal pricing altogether – the theory being that, with the price being less complicated and cluttered, the consumer will focus his attention more on the food and less on the cost. There’s even definitive research that product pricing is more effective when the Rand symbol is not included on the tag – with researchers believing that the Rand symbol establishes an emotional connection between the actual price and the consumer’s pocket, causing the consumer to hesitate longer before making a purchasing decision.

With the retail market swamped by the digits 0, 9 and 5, the digit 7 has been unceremoniously claimed by the on-line market. For some inexplicable reason most on-line prices are set to end with the digit 7. Although widely believed to be a lucky number as well as having biblical significance, there’s no sound research that explains its on-line popularity. And although the digits 3 and 4 are ostensibly the least popular digits when it comes to price-ending, they do serve a small function when sellers want to send a clear message to the consumer that the product has been optimally and exactly priced, with no further room for price reduction.

As unwittingly sensitive as price ending can be, its leverage can be further boosted by what is referred to as price bundling – and stores like Woolworths are becoming masters of this crowd-puller. “Buy bulk and save“, “Two for the price of one” and “Meal for 4” are in effect clever combinations of price ending and price bundling rolled into one pristinely packaged must-have meal. Retailers understand that, when driven by the overwhelming and not altogether rational urge to spend, consumers rarely stand back and do the maths. In the moment of purchase, consumers become emotionally charged by the possibility of a discount, a free item and or an unbeatable bulk purchase, that somehow the maths becomes either secondary or too complicated to unbundle standing up. Unless ofcourse the retailers specifically want you to understand the maths, in which case you can rest assured that the original (usually excessive) price and the unbeatable sale price will be ever-so-conveniently marked, together with the difference between the two prices for those who still can’t do the maths.

As fascinating as pricing strategies can be, the real benefit of understanding how retailers price their products in order to achieve optimal sales is that it makes us more concious and careful consumers. Granted, retailers have a quiver full of tactical pricing arrows available to them that, with years of research and mind-blowing marketing budgets, have the ability to influence consumer behaviour in sometimes frighteningly irrational ways. But consumer education, that powerful tool available to each and every income-earning South African, has innately more power than digit combinations, font sizes and sale banners. Our advice is to enter every store equipped with as much knowledge as possible, remain alert to the pricing weapons wielded by retailers, do the maths standing up and take charge of your purchasing decisions. Spend only what you rationally, consciously and willingly wish to spend, and not a penny more.

Have a super day!

Sue

Up market shops such as Jenni Button and Jimmi Choo never use a .99 on their price tags.

There’s conclusive evidence that printing the price tag without the Rand symbol makes customers feel more at ease when shopping.

The prospect of getting something for free or at half-price can cause people to buy items they don’t necessarily need.



Categories: Lifestyle Financial Planning

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