It is the truth that consumers are not good at establishing absolute values, but their brains work on ‘relative value’. While consumers are not as good as you might imagine at comparing retail prices for one product between different retail options, psychological studies show that consumers’ brains do look for a relative comparison by ‘price anchoring’.
To explain: a consumer will determine whether a retail price is expensive when it is compared to a similar product at a different price. If a customer looking for golf shoes starts by trying on a pair of £84 FootJoy GreenJoys, the price might seem relatively expensive. However, if the customer starts by trying on a £139 shoe, then the GreenJoys represent a price anchor, and the £84 is perceived as relatively inexpensive.
On the run
Studying shoes being sold at a specialist running store, I watched a consumer fuss over the price of running shoes for which she was being fitted. She came down from the top-priced shoe and settled on a relatively cheaper shoe at £90. To my astonishment, the sales person then introduced ‘inserts’ to the consumer, who seemed reluctant at first. But after having her ‘hot spots’ measured, the consumer gladly bought an insert set for an extra £45! You can guess what the margin could be on the inserts.
If that consumer had come into the shop and the salesperson had tried to sell her £45 inserts from the outset, I guarantee she would have perceived the £45 price as too expensive. As it happened, the inserts were introduced after the £90 price for the shoes had been set in the consumer’s mind, so the £45 price for inserts seemed less expensive. The £90 served as an anchor against which other prices were judged.
A polished approach
Look at the price of women’s shoes in a Versace store, and notice how the merchandise is displayed. There are always very striking, flamboyant shoes raised on well-lit plinths to catch consumers’ attention. Consumers will often be drawn to such a shoe, turn it over and look at the price. These are the $4,750 shoes (this is my local Dallas store). The other more modest shoes, not highlighted on plinths, are priced between $1,500 and $2,500. For those who can afford to shop in Versace, the shoes targeted at the shopper seem relatively better value because they have been picked up after a top-of-the-line shoe.
As it happens, these shops don’t carry a full range of the very expensive shoes. They carry just two pairs, in different sizes. The second pair is stocked just in case someone buys the shop display pair.
Remember, the consumer responds to price anchors.
