Monthly Archives: June 2012

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Navigating the sales: cues to influence consumers

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.

Responsible recommendations and seeking information

Given my previous discussion of the not particularly compelling correlation between brand/price and quality, and people’s not particularly good ability to judge quality of items they might want to purchase, I’ve been wondering about what various factors and elements might coax people into consuming and what information people actually use to make a decision to purchase something, other than brand name and price (especially online, when information about the item you’re considering purchasing might be more limited because you can’t physically inspect and interact with the item).

Recommendations seem to me like they would have a pretty powerful influence over people’s decisions, particularly online. If I see a nice item recommended on a blog that I like, I find myself contemplating whether I need to buy that item myself, even though I might never have wanted it otherwise. More positively, recommendations are a good way of adding data to your decision about whether to purchase something, particularly if the recommendation comes from someone you feel has similar tastes or values to yourself.

Are online recommendations powerful? Do people pay attention to such recommendations and do the recommendations influence people’s purchasing behaviour? Because if you’re a blog writer or a blog reader, or you read or write online reviews, that would certainly be something to consider. Do writers need to be more circumspect about recommendations? Do readers need to be more cautious about evaluating information about a product based on online recommendations?

In the case of some research that looked into this, consumers can be divided into two groups: those who have a high motivation to process information related to a potential purchase, and those who have a low motivation to process that information. If you have high motivation, you do a lot of research, a lot of information gathering, a lot of shopping around, a lot of careful consideration. If you have low motivation, you try to minimise the effort you put into making the decision about what to purchase, you don’t investigate potential alternatives much, and you look for shortcuts that you hope or assume will lead you to the right choice.

Now these two groups – the one with a high motivation to process information (HM) and the one with the low motivation to process information (LM) – react differently to recommendations that they read about particular products online.

When an HM individual reads a recommendation online, it actually motivates them to do even more researching and evaluating. In fact, the stronger the recommendation, the longer an HM individual spends analysing information about all potential options (and the recommended option itself). That’s a pretty good outcome, really: HM individuals are pretty motivated to gather all the information they need to make a well informed decision about a purchase, and recommendations motivate them even further, and in the end they are more likely to make the optimal decision.

The LM individuals, on the other hand, are looking for shortcuts to minimise the time and effort in making a decision about a potential purchase, so they tend to focus on the recommendation too much. When an LM individual encounters a recommendation, that recommendation seems to redirect the individual’s search efforts: their search efforts end up limited to the recommendation and perhaps little else. And, unsurprisingly, LM individuals end up more likely to make clearly sub-optimal choices in their decision about what item to purchase. And on top of that, apparently all it takes for an LM individual to make a sub-optimal choice is a single online recommendation for that particular item.

I imagine that LM individuals might be able to improve their decision-making by devising some rules regarding the amount of information that they should try to obtain before finalising their decision. If you think you might be a bit LM in your decision-making style, try to come up with some points for a checklist to use in guiding your information gathering. If reviews of a product are widely available, have you sought out at least, say, 5 different reviews? If reviews of a product are scarce, what evidence is there that the one review you’ve seen is from a reputable source, or from someone who would have similar standards or needs to yourself? Have you looked for at least one or two alternatives to the product you’re considering, and again sought out multiple reviews of those items? Willfully applying a more strategic and structured approach to your information gathering might feel like a bit of drudgery, but it might yield better results for you in the long run!