How price wars can be won by careful wording

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By: Wise Marketer Staff |

Posted on June 8, 2007

How price wars can be won by careful wording

Every day shoppers in retail stores stand frozen in indecision, trying to decide what to buy among the myriad options on the shelf. But, whether they are weighing up TVs, foods, or sunglasses, their choices can be swayed not only by product features but also by suggesting other ways they could spend their money.

Consumers do not spontaneously consider the opportunity costs of a purchase or other ways the purchase money could be spent or saved - but they can easily be prompted to do so, according to researchers at the Yale School of Management, MIT, and Arizona State University.

Price sensitive mentality The researchers found that once consumers are reminded of alternative ways they could use their money it significantly influences their choices, making them less willing to purchase a presented item and more likely to prefer the cheaper option when a choice involves a trade-off between price and quality.

Even small prompts to consider opportunity costs can affect consumers' choices. In one experiment, two groups of consumers were asked to decide between a US$1,000 stereo and a slightly inferior US$700 model. For one group the price difference was left implicit, while the other group received the description "leaving you US$300 in cash". The cheaper stereo was chosen significantly more often when the price difference was explicitly noted.

Simply describing the cost difference as surplus cash tends to prompt consumers to consider other uses of the "extra" money (such as having US$300 to spend on CDs that they wouldn't spend otherwise).

Focus on what's presented "Consumers generally focus only on information that is explicitly presented to them. Although factors such as the price difference between two items may seem obvious to marketers and merchandisers, mentioning it explicitly seems to dramatically change how consumers think about their purchases," explained study co-author Nathan Novemsky, an associate professor of marketing at the Yale School of Management.

The study suggests a number of promotional tactics that manufacturers of low price brands could employ to help promote their products more effectively in stores. For example, they could increase consumers' price sensitivity by prompting shoppers to think about the cash they would be left with by not buying a more expensive competitor's product, and even highlighting more attractive ways to spend the difference.

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