Stop blaming price competition
The claim people buy on price is a myth, and in the latest in a series about consumer psychology Ashton Bishop and Gary Wilkinson look at how retailers can make the most of this.
Consumers don’t make rational decisions based on price and marketers need to stop pretending they do.
There is a common refrain amongst marketers in some categories that consumers buy on price. What nonsense. Price by itself is meaningless, and please slap the next marketer who trots out that excuse for why they are losing in their category.
Hi Ashton and Gary, I really enjoyed this post as well as your previous ones – please keep the coming.
I have a serious question though: given that the simplest, quickest and safest choice is usually going to be “the brand I went with last time”, the game is rigged towards established brands, as long as they don’t stuff it up, right? And if you are discounting discounting as an effective strategy to lure away buyers of other brands, what strategy would you recommend for a new or small brand?
Spot on, I think when we fall into the low pricing trap we do our customers a diservice, you give them what they want not what they need.
The best bit of this article was; ” let’s focus on helping them make simpler, quicker and better buying decisions” – no lets sell them whatever we’ve been paid to sell to them.
I fell this article ignore capacity. If only have $5 to spend and one item costs $5 and another similar item cost $7 then I’m obviously buying based on price.
It also ignores the fact that price information is now easy to find. Some people will spend hours online looking for the best price. We can now compare identical or similar products incredibly easily. I think price is actually more important than ever. The studies quoted are interesting but assume a situation where people don’t really know the price of something and can’t easily access information. Ask those students how much the wine is worth when they have their smartphones with them. You can tell the consumer whatever you want but more information is only a google away.
Great article and insight guys.
It made me analyse my own purchasing and selling behaviour…
Despite being aware of pricing strategies. I am consistently drawn to premium priced services due to my fear of missing out – am I being a fool by not just paying more for a ‘proper’ version of the service….
This is in part trust (see Al’s point above), but also because in a small amount of time I research just enough for the decision, so it’s this tiny amount of knowledge that guides my premium purchase decision.
So when I sell my service, I look to make my clients minor experts, with just enough knowledge to pay me properly for what I do and compare me favourably with the cheap competition.
An interesting recap of Behavioural Economic theory which hopefully these guys are not claiming as original thinking. It is though a useful reminder. The perpetuation of discounting is guaranteed of course by the number of marketing and sales managers who have neither the wit or the courage to try anything more demanding………………………………
@Groucho I don’t think there is anything in the story to suggest they’re claiming that this is new thinking. It’s a really good summary of a complex field, along with their previous story.
Nice post guys.
Yes, helping them. That’s what we’re doing here. “Hi, I’m in advertising and I’m here to help you make quicker and better buying decisions.”
Can we at least call it what it is: manipulation.
I really think the thoughts and analyses in this article are fantastic, particularly for those in the services industry.
As Billy C says people will trawl the net for a particular brand of TV or car etc until they find whoever is willing to take the biggest margin hit, however, when it comes to offering services it really is a dreadful mistake to come in on a discount dive because you are immediately pigeonholed forever by that client (should you secure them) as the “El Cheapo” solution and they will use you until you just can’t keep the loss lead game going anymore.
Ask for your fair price after delivering your best and watch how quickly they drop the lines in the water for the next poor sucker.
I also thank them for mentioning those evil group deal co-op companies. They need to disappear quickly.
Great post, thanks guys.
@ Al,
We tend not to recommend discounting as a ‘strategy’, it’s a tactic that sometimes generates short term results, but sometimes with a nasty hangover.
For small brands and challenger brands we recommend Dave Trott’s Predatory Thinking that we outline here http://www.stepchangemarketing.....esses.aspx let me know if you find it helpful or not. There’s fuller presentations on linkedin and slide share.
@ Billy C, some good points well made. I agree that price comparisons are now easier than ever; however, I also think that products are rarely ‘identical’ and therefore the onus on marketers is now higher to communicate value clearly AND quickly.
@Groucho Daniel Kahneman is clearly recognised the father of Behavioural Economics. I don’t know where you got we’re trying to claim credit for it as we also cite Ariely appropriately in the above. In this series of articles (this is the 3rd) Gary and I are trying to share and give practical application of some of behavioural economics research and theories specifically to marketing. I honestly believe this type of thinking can have a much bigger and broader impact for marketers and it’s an important field to distill, discuss and challenge.
Don’t disagree with you at all Ashton.. You should read more carefully though, I did not say you were claiming credit for it. What I said was I hoped you were not claiming credit. Such a difference should be spotted by a researcher with a requisite understanding of language and meaning I would have thought.
Excellent post guys, loving the series. It’s the practical application that challenges most product managers and marketers as they sail by these concepts on a daily basis. Of course @Groucho would never make the mistake of succumbing to the vast number of commercial, political, and organisational pressures that face professional marketers – wit and courage will get you there every time…
Nice piece.
Wonderful to see others in the industry taking the learnings from behavioural economics seriously.
We are rarely rational. Except when we lecture other people on how irrational they are. They don’t know they are irrational but we do, so we have to explain it to them. That’s not because we think we are the elite insiders in the know, but because we know that people are basically stupid. Yeah? We call that behavioural economics.
Groucho is being disingenuous plain and simple. The implication of “which hopefully these guys are not claiming as original thinking’ is in the same class as ‘when did Bill stop beating his wife?”
@Geeb : “When I use a word,” Groucho said, in rather a scornful tone, “it means just what I choose it to mean—neither more nor less.”
Then you need to publish a Grouchinese dictionary/phrase book so the rest of us can stop misinterpreting your wisdom. (Said Geeb with a that must have touched a nerve smirk)
It appears you have lost touch with reality or earn way too much money. To say price has nothing to do with purchase is utter nonsense. Of course, people will pay more for a quality product. Apple is a good example. Then there’s Samsung. They sell many more units than Apple because they’re not as expensive. Then there’s every ay items. Why do cigarettes in Australia cost $20 a pack? Because price matters.