Bargain perception – sale price versus original price

Sellers should make their customers focus on the original price rather than the sale price when encouraging them to feel there is a good deal. Everybody loves a sale, especially when “the price was good”.

When people are asked what makes a sale most appealing, the majority mention a good price. However, that answer does not reveal the subjective factors that contribute to the consumer’s perceived value of a good deal.

Researchers from the universities of Colorado, Boston and Florida set out to determine what factors encourage customers to feel that they have a good deal.

They wrote in the Journal of Consumer Research:

“We find that the more a consumer relies on the original price when trying to determine a product’s worth, the more valuable they perceive the deal to be.”

”If a retailer can get a consumer to pay more attention to a $179 original list price, and less attention to a $99 sale price, when assessing the worth of a winter jacket, then the $99 sale price will seem like a better deal.”

If customers just focus on the sale price there is a risk of bias. The authors wrote “An offer price that is lower than an internal reference price can encourage a consumer to reduce the internal reference price, and, consequently, reduce the appeal of the offer price.”

When focusing on similarities and dissimilarities of competing products

In their study, Chris Janiszewski, Christina Kan, Donald R. Lichtenstein and Susan Jung Grant summarized three situations in which the list price of a product has a greater impact on its estimated worth, and consequently the perception of a good deal.

The researchers explain that when a customer focuses on the similarities of competing products, they are much more inclined to consider all the available data when judging a product’s worth.

High up in that available data in the process of bargain perception regarding a product is its original list price and sale price.

However, when customers concentrate on product dissimilarities, they are more inclined to focus just on the sale price (and not original price) when trying to determine the product’s subjective value.

The authors concluded:

“This research provides insights for both retailers and consumers. Retailers can make a sales event more effective by encouraging the consumer to rely on the original price when assessing both the value of the product and the value of the deal.”

Additionally, by comparing product prices at competing retailers, consumers can lessen the impact of the original price on their assessment of the products’ overall worth.”

Video – The psychology of price

The speaker explains how most customers today are focused on price, and the lower the better. Retailers react to this by slashing prices, even though they may be prices that very few could survive on.

However, when one looks at the psychological reasons for consumers’ obsession with low prices, there are some fascinating twists in their thinking that can make things seem a great deal better than, in fact, they are.

For example, paying full price may be unthinkable, but today what exactly is full price? Is it the product’s real cost or more of a “reference price” that shops and discount stores use so that the shopper feels the deal is too good to pass up?

Inflated prices make products more desirable to consumers, even though they know it is inflated, making the discounted price seem comparatively low.

Shoppers rarely know how much things should cost, but they think they know. Donald Lichtenstein, Professor of Marketing at the University of Colorado explains that customers believe that if something is untrue the retail outlet is not allowed to lie to them.

The video goes through some of the “missing pieces” in the shopper’s psychological perception of price. Understanding those components can help retailers develop a price strategy that caters for both the consumer’s hunger for low prices and the store’s ability to make a decent profit margin, while at the same time retaining customer loyalty.