It seems like sales time is upon us again, although some retailers seem to be in a state of perennial discounting. I have been reading up on some of the research into how people react to sales and discounts and how retailers can use sales and discounts to their profit-boosting advantage. Unsurprisingly, that is a massive body of research, and it gives a lot of insight into not only the retail industry but also the cognitive reasoning strategies of the human mind.
One of the research papers I was reading referenced an article in the Harvard Business Review, which Oregon State University has made publicly available as a PDF here. It summarises a small sample of research findings regarding the effects of pricing on consumers, and is an easy read. The article is almost 10 years old now, so it’s interesting to think about both in terms of what is probably still true and what might have changed as the consumer landscape has evolved.
Have a read of the article and see what you think. Here are some of the findings it discusses, as well as my own thoughts about whether such findings would still hold true today:
- If you ask an average supermarket shopper what the price of an item is after they’ve just taken the item off the shelf, less than half of the shoppers will give an accurate answer.
I don’t find this particularly surprising for people of a particular economic position who aren’t being incredibly careful with their grocery spending – such a person is probably buying an item that they’ve bought before or is very similar to something they’ve bought before, so they probably know they can afford the price even if they don’t explicitly know what the price is. And I think once you get past perfunctory grocery shopping, people will start to know the prices of items better – if someone has just picked up a pair of jeans they intend to buy, it’s much more likely that they’ll know the price off the top of their heads, compared to if they’ve just picked up some milk or half a dozen eggs.
- Consumers pay attention to pricing cues such as sales signs, but retailers should be careful not to put too many sales signs out – a sale that’s too extensive seems to cheapen the products under certain conditions, and people are actually less keen to buy if there’s a profusion of sale signs absolutely everywhere.
I don’t know what contexts this is true for, because I think an established and respected department store, for example, could put a prodigious amount of sale signage out during sale time and people wouldn’t perceive the whole store as being “cheapened”. But if a store were to do that constantly, then I could certainly understand that it might have a cheapening effect in terms of people’s perceptions.
- We seem to use prices that end in a 9 as a cue to a bargain. In one experiment using a mail order catalogue, demand for a dress was higher when it was priced at $39 than when it was priced at $34. This is possibly because some retailers at some point did use prices ending in 9 for sale items (the article doesn’t say exactly when or where or to what extent, although it does say that J.Crew and Ralph Lauren used 00-cent endings for regularly priced merchandise and 99-cent endings for sale merchandise, which as far as I know is still true of J.Crew).
I think the price-ending-in-9 being used as a pricing cue to get the attention of consumers is something that has already been capitalised on, really, and therefore possibly isn’t true any more (or isn’t as true as it once was). I think enough retailers use prices that end in 9 for all their stock these days that consumers don’t have any sort of implicit assumption that 9 equals a bargain. I just had a quick look at the online stores for three major mid-range Australian clothes retailers and all three of them have prices that are in the format of either $xx9 or $xx9.95 for basically all full-priced items. I guess to a certain extent that little trick still works, as on a moment’s judgement $89 seems quite different from $90, and it makes it that little bit more difficult to do the mental arithmetic when buying multiple things. But I think a lot of people simply don’t have that mental association between a price ending in 9 and a sale price. Plus I think with the rise in popularity of online shopping and the possibility that people will be shopping in different currencies, fitting the price to particular formats is perhaps increasingly obsolete.
- Retailers use signpost items, so: even if people aren’t great at knowing or guessing the prices of a lot of things, there are some items that a lot of people might be familiar with when it comes to pricing. Retailers place such items prominently and at a considerable discount, which makes people think “Oh hey, that’s pretty cheap for that item – the rest of the stuff in the store is probably cheaper than average as well, perhaps!”. And that is why supermarkets always have packs of Coke or Pepsi or whatever out the front. They often lose money on those items because they discount them so heavily to attract people into the store.
I really hadn’t considered why there are almost always cans of drink stacked up outside a supermarket, but know that it’s pointed out, it’s kind of obvious in retrospect.
It is incredibly interesting to consider these points from the standpoints of both retailers and consumers. As a consumer, being aware of tactics that might be employed to coax you into a purchase is empowering. However, these tactics are unlikely to remain static – as consumers grow wise to current tactics and as their access to information increases (both in terms of understanding how retailers operate and in terms of having alternative options available in an increasingly busy global marketplace), retailers will have to keep changing their game. I would be very interested to know exactly how those tactics have changed in the 10 years since that article was written – the changes have surely been drastic, and the changes in the future will probably have to be even more innovative.