When it comes to retail pricing strategies, customers are giving retailers the clear message that they get satisfaction out of tracking and finding the best prices. We may not understand why, but it's enough to know that it exists. Ask Penneys. Penney's "lost" their customers -- by taking the thrill out of the chase -- when they decided to say a priori what the price would be every day. Customers didn't like it, and voted with their feet. "Maybe Shoppers Don't Want 'Fair and Square' Prices After All," wrote Time writer, Brad Tuttle," in another article about the hard lessons Penney's learned over the last two years.
Ask Behavioral Economist Dan Ariely, author of Predictably Irrational about choice and power. Ariely gives example after example, from serious research revealing that the customer needs to "feel" that they've hunted for, and found, what they wanted, at a price they wanted. So, as it becomes clearer that a customer needs to hunt for prices (they also like the use of coupons, weekly circulars and teaser promotions), here are 8 tips for playing the pricing game -- to win the customer -- and the sale.
1. Price as if Goldilocks were the customer. Give customers choices. If you let the customer choose between two items, they'll choose the cheapest one. Give customers choice between three items / packages and they'll choose the most expensive or second most expensive.
2. Bundle and recreate value: Package products in creative ways. Peripherals with TVs; cheese with wine; accessories with shoes.
3. Use numbers shown to be more psychologically appealing: .99 cents instead of $1.00; $9.99 instead of $10.00. Numbers ending in 9 or 7 or 3.
4. Sell Two-For-One. Much better than saying half off, and usually encourages the customer to go for the deal, even if they didn't intend to buy two.
5. Do Promotional Sales. Sales, of course, but not regularly, or the customer will get the idea that you had a value established before you even started. Customers have to feel that they're getting a bargain, a value.
6. Use Prestige Pricing. This means properly pricing items the customer perceives as having an intrinsic value. Who decides that the item is valuable? The customer. And the customer is willing to pay for the "prestige" or social value (think Apple; cars, wristwatches, jewelry, etc.).
7. Repackage in different quantities than the competition. We know one retailer, who, using retail analytics, repackaged the same items, but in different quantities than their competition -- and at competitive prices.
8. Use Loss Leaders. The starting point for most customers is to go online to search for products and to use Comparison Search Engines to do so; generally, but not always, looking for low prices. If the question is price, most customers won't get past the first page. In order to get the customers to your site, you may have to use a loss leader, and once at your site, entice customers to check out other products while they are there.
Bottom Line For Your Bottom Line:
Even if we don't always understand it, there is a psychology of pricing and selling it's part of a game customers like to play where the thrill of the hunt for price holds sway. This kind of customer behavior shows why retailers need to use competitive pricing intelligence to price correctly and make the sale. Retailers who understand these simple psychological principles are going to get maximum return for their wise pricing. Ready, Set, Price!