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A Question of Perception
Published:  05 April, 2012

Ian James, chief executive of RetailTribe, writes that the top high street retailers recognise that the ‘rational consumer’ does not exist

Consumers’ awareness of retail prices in absolute terms is awful. Most don’t know the price of a dozen Titleist Pro V1s. Most are not sure if your shop is more or less expensive than the superstore. Consumers judge by perception, and understanding perceptions can translate into increased profits.

Think of yourself as the consumer: if you are offered £10 off a £100 product you feel good about it. But if you are offered £20 off , are you actually twice as happy? No, you’re not. In fact, to generate twice as much ‘happiness’, you have to receive four times the saving. So bigger savings might not generate the response you are expecting from your customers.

On the other hand, a study of watches found that consumers expected to pay about eight times more to get a watch that was only twice as good as a Swatch. There is often little rational relationship between ‘value’ and the price the consumer is actually prepared to pay. Think about the difference in prices between premium and budget golf balls: the premium prices far outweigh the performance benefit for the vast majority of golfers.

You can capitalise on relative judgments in the pro shop in a number of ways:

A ‘save £10 against the MRRP’ sign will have impact on the perception of your pricing whatever the absolute facts.

When listing lesson prices, £50 a lesson looks much better relative value if the first price listed is £240 for a package of six lessons. (Make sure the assistant’s £30 fee is not top of the list.)

Unless you are clearing stock, be careful about the scale of savings you offer – bigger price cuts won’t double your consumers’ appreciation or double sales. Small, regular savings make consumers happy.

A consumer expects to pay a lot more for something that is only slightly better – you just have make sure they know why it is better.

www.retailtribe.com




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