pricing products
Pricing for Goods
Vocabulary
| tactic | boost | display |
| stuff | tabloid | thereby |
| entice | display | check out |
| trick | decoy | anchor |
| profit | assume | priceless |
| hope | deluxe | customer |
| flop | touch | slightly |
| status | feature | exclusive |
| retail | conscious | take advantage |
| allure | target | phenomenon |
| shy | shy away | associate |
| trial (2) | premium | moreover |
| opt | replace | approach |
| digit | version | conduct |
| catalog | identical | respectively |
| deal | include | discount |
| sale | original | price tag |
| bump | bargain | mark down |
| sample | half off | sure enough |
Pricing Tricks
Businesses employ all sorts of tactics to boost sales.
At the grocery store, the stuff we came for (bread) is all the way at the back, while the things we don’t need (the latest tabloid) is placed at the check out.
Here are some common pricing tricks.
1. The Anchor Decoy
One is the anchor decoy. This is a highly priced product on display. Shoppers assume it is of high quality and makes a big profit for the store.
In reality, its main function is to make the other products look like cheap by comparison — and thereby entice customers to buy the “main” or “target” product.
An example of the anchor decoy comes from Priceless, a book by Bill Poundstone.
The Breadmaker
When Williams-Sonoma introduced a breadmaker for $279, it didn’t sell as well as they had hoped.
At first they thought that customers may have wanted a bigger, more deluxe model.
And so Williams-Sonoma introduced a $429 model (which had just slightly more features).
What happened?
Hardly anyone touched the $429 model. It flopped.
. . . But sales of the $279 model suddenly doubled.
2. Veblen Goods
The anchor decoy also takes advantage of another psychological phenomenon: exclusivity; luxury-minded people will always seek out the highest priced items.
These status-conscious customers will pay the price — no matter how high. This product is called a Veblen.
With this in mind, retailers raise the price of luxury items, and thus increasing their allure among this target group.
Rolex began selling more watches when they increased their price — and prestige.
3. The Middling Effect
Most customers shy away from the lowest priced items. They generally associate them with poor quality (which they believe in the long-term will cost more).
Moreover, they themselves don’t want to be seen as cheap and poor.
Yet, unless they are that deluxe customer, they also don’t want to pay too much for the most expensive item.
And so, the best approach (for stores) may be to price the target product in between decoys.
The following came from a beer study described in The 11 Ways That Consumers Are Hopeless at Math.
Beer Study
In the first trial, consumers were offered two kinds of beer: a premium beer for $2.50, and $1.80 for a cheaper beer.
Around 80% chose the more expensive beer.
But when a third option was introduced — for $1.60 — 80% bought the $1.80 beer, and 20% the $2.50 beer.
Nobody opted for the $1.60 beer.
In the third time around, the $1.60 beer was replaced with a $3.40 super premium beer.
Again, the majority of consumers picked the mid-priced, $2.50 beer; a small number chose the $1.80 beer; and around 10% selected the most expensive $3.40 “luxury” beer.
4. The Magic Number, 9
In eight studies published from 1987 through 2004, prices for items ending in the digit “9” ($1.99, $49, and so on) boosted sales by 24%.
In an experiment conducted by the University of Chicago and MIT, a catalog was printed in 3 versions.
Each catalog sold identical items and was sent to identically sized samples. The only difference was the price for some of the items. In the first catalog, it was set at $39. And in second and third versions, the identical items were $34 and $44 respectively.
Guess what happened?
There were more sales at $39 than at either of the other prices — including the cheaper $34!
5. Everyone Loves a Deal
Sale and discount prices draw the most buyers. Everyone loves a deal, and will often buy products just because they are on sale.
Stores will often display a price tag: “75% off the original price” — with the original price clearly displayed, for example $100.
What a bargain!
What sellers never tell you is that they had bumped the price up long before they actually discounted them.
What happens is that the retailer buys a coat for $10 and sells it for $100.
Then they reduce it by 25%.
Wow!
Now it’s ONLY $75.
Still too expensive?
Next week another mark down, half off . . . now it’s $50.
You wait and sure enough, finally, there it is, 75% off!
For $25, customers will take four: one blue, one red, one green and one purple.
Questions
1. There are many psychological “tricks” that stores use in selling. Yes or no?
2. What is the anchor decoy? Describe how it works. What was the example with the breadmaker?
3. Are Vablen goods cheap, middle-priced or expensive? What is the reasoning behind it?
4. Talk about the middling effect in the beer experiment.
5. What can you say about the number “9”? What is the explanation for it? Which price tag sold the most items: $34, $39 or $44?
6. Describe the experiments with sales and discounts. What can account for that?
A. I am very familiar with these pricing strategies. Yes or no?
B. Does your company or organization have such pricing strategies? Describe them.
C. How could you sell more items in your business?
D. People buy for emotional, not logical, reasons. Do you agree? What are some human attributes or emotions involved?
E. Can online shopping change the pricing situation or will it remain the same?
