When you head into your local supermarket, are you drawn to the brightly coloured tags promoting a reduced price? You’re not alone, of course, if you are.
Why wouldn’t you buy something at a cheaper price than you can normally get it for? It’s the financially responsible thing to do. But have you, in fact, become an unwitting ‘victim’ of pricing psychology?
What is ‘pricing psychology’ and should you care about it?
Pricing psychology is a tactic used by retailers to understand which aspects of price will motivate customers to buy more.
Retailers who understand these motivations use them to their advantage, creating what they might publicly call a win-win situation. They sell more of their product, and the customer gets a good deal.
At least, the customer thinks they’re getting a good deal. But are they really?
Think back to those brightly coloured (yellow in the case of both Coles and Woolworths) special tags. What are they actually offering you? A cheaper price, obviously, but how are they doing that?
As a regular visitor to both Coles and Woolies, I’ve noticed that both offer periodic discounts on items by simply lowering the price. This will often be accompanied by a ‘20 per cent off!’ or ‘Half price!’ tag. For many, the immediate response is to pop the sale item in their trolley or basket.
The question is, would you buy this item in any case, or is it normally an occasional treat? If it’s the latter, there could be some pricing psychology going on.
Let’s say the item is a packet of biscuits. You take them home and offer them to the kids. The kids, being kids, love the taste! So when it’s time for your next supermarket shop, what will the kids say? They’ll probably ask for more.
And many parents, perhaps not you (depending on your willpower), will say ‘yes’, just to please the kids. But on the next visit to the supermarket, are those biscuits still on special? Almost certainly not, but you’ll buy them regardless. And they may even become a regular purchase. The pricing psychology has worked.
But wait – there’s more!
That’s one example of pricing psychology. Another simple one, that Coles seems to use far more than Woolworths, is making an item cheaper if you buy two. The big yellow ‘2 for $7’ sign screams ‘savings’ to you. Especially when you take a look closely at the much smaller print that says ‘$4.50 for 1’. So if you buy two, you’ll be saving $2!
And indeed you will be saving $2 – if you were always intending to buy two. But if it’s a snack item or some other treat, would you really have bought two? Perhaps your answer is, ‘Yes, I would have bought another one next time around, so I’m saving by buying now.’
Again, this is true – if you leave that treat in the cupboard unopened until your next supermarket shop. Do you have the willpower? I don’t, so unless it’s a staple item that I won’t be tempted to binge on, I avoid the ‘cheaper if you buy two’ specials.
The decoy
One particularly shrewd pricing psychology tactic employed by retailers is the ‘decoy effect’. This practice is used widely online and involves providing an extra product option.
Gary Mortimer, associate professor in marketing and consumer behaviour at the Queensland University of Technology, recently wrote about this. In its simplest form, the decoy effect involves adding a third particular product to the list of available items.
Prof. Mortimer uses the Nutribullet juicer to illustrate the decoy effect. In his first example, an ad offers a choice of two models. One has 900W power and five accessories and costs $89, the other 1200W power and 12 accessories at $149. Many shoppers will say, ‘An extra $60 for 300W extra power? No thanks.’
However, the introduction of a third model, with 1000W power and nine accessories for $129, changes the perception for many. This might create an argument along the lines that it costs $36 more for just an extra 100W – probably not worth it. But for just another $24 on top of that you’ll get another 200W. Bargain!
The mid-priced option, in this case, was introduced to try to sway you towards the most expensive option. And in general, it works.
The tip of the iceberg
These examples are just a few of many pricing psychology tactics used by retailers. Do such tactics bother you enough to change your habits? Perhaps not, but it’s good to at least be aware of how they’re being used. And you might just think twice the next time you see a yellow tag.
Are you a sucker for specials at the supermarket? Were you aware of the psychological ‘tricks’ retailers use? Let us know in the comments section below.
Also read: Six expert tips for second-hand shopping
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