Cost of Living Crisis & The Psychology of Price & Promotion - Facts you Need to Know

If you run promotions as part of your trade marketing activity, then chances are you are giving away more than you need to

The never ending challenge of pricing and promotions: Get prices too low and bang goes the profit, too high and sales suffer. To make things worse, you can’t ask shoppers how much to charge because they’ll tell you want they want to pay; which is usually a lot less than what the product is really worth. Also, as we all know, what shoppers say is different to what they often mean.

Here's your opportunity to tap into more than 20 years of studying shoppers and shopping. During this time I have amassed almost 500 specific psychological rules relating to how the human brain perceives prices, promotions and added value in-store.

What never ceases to amaze me is the fact that even though brands and retailers ‘give away’ literally ￡ millions in the form of in-store added value offers, they leave the communication to rudimentary, templated shelf edge barkers. This is false economy of the highest order!

Contrary to popular belief, shoppers tend not to know individual product prices. They make do with vague guesses based on what they think items should cost. Shoppers are irrational, but as I have identified many times, they are predictable when it comes to prices and promotions in-store.

Retailers and brands could improve performance if they listened more to psychologists and less to accountants. For example, how do the likes of Starbucks charge more than ￡2.50 for a cup of coffee, when MacDonald's charges just over half that amount? They sell the experience of buying coffee: All that barista stuff, steam and waiting around for your flat white to be 'expertly created'.

Why would a shopper by Head & Shoulders shampoo from Waitrose for ￡5.15 when it’s only ￡4.75 in Asda? Because it’s in Waitrose, that’s why!

What’s the best way to sell a basic thermal mug for more than ￡20? Display it in a car showroom next to vehicles each costing many thousands of pounds. It’s all about context: Nothing is cheap or expensive by itself, but compared to something else next to it…

Here are some genuine examples that prove just how irrational most of us are as shoppers.

Researchers found that promotional price tickets that mentioned an old, higher price (Was/Now) sold more than special offer barkers that just gave the actual price. And if the new lower price ended in a ‘9’, sales were even higher.

In a separate study, it was discovered that the size of the font used on the price ticket impacted on shopper perceptions of value. Yes, that’s right, as the most intelligent species on Earth, we think that if the price is written in smaller sized numbers, it represents better value for money!

And another example from the annals of psychological research. Researchers found that if prices were to the left of product information on a shelf barker, then they were perceived as being better value than if the price was on the right. And if the price was located lower down on the left of the shelf barker, then the corresponding item was perceived to be better value still.

In another experiment, when shoppers were offered 2 kinds of beer: A premium beer for $2.50 and a bargain alternative for $1.80, around 80% chose the more expensive option. But when a third, super bargain brand was introduced costing $1.60, 80% of shoppers chose the $1.80 bargain beer. And when the super bargain beer ($1.60) was replaced by a super-premium option costing $3.40, most shoppers chose the $2.50 beer once again. In summary, it’s all about context.

Science also says that offering different price points makes shoppers choose between the products on offer instead of deciding whether to but something or not.

Continuing with the beer theme, researchers tested 2 different scenarios. When asked how much they expected to pay for an ice-cold beer, shoppers responded with higher prices when told the beer was coming from an exclusive outlet, rather than a rundown convenience store. In our own research, we have identified that shoppers perceive soft drinks to cost more when buying from the chiller in the Food To Go area of the supermarket, compared with selecting the same item from the main aisle. In other words, shoppers attach value to the added convenience and chilling of the beverage.

In this brief article, I have summarised just a handful of psychological reasons that impact on shopper perceptions of value for money. For the record, I have many, many more. So if you want to apply science to your prices and promotions, let’s talk.