Price matters, but not as much as some retailers may think
It’s common knowledge that consumers are more picky when it comes to pricing than they have been in the past. This habit stemmed from the recession, when their discretionary budgets were low due to changes in the economy. The recession is now a few years in the past, but that doesn’t mean consumers are blowing all their money on retail purchases. Many are still very cost-conscious, so it will take a savvy merchant to offer shoppers the product they want at a price they can afford.
How much does price matter to consumers?
Setting the right price this holiday season will be tantamount to success. New research published in the Journal of Economic Psychology, conducted by the University of Adelaide School of Economics, illustrates just how important pricing can be in retail.
As noted earlier, consumers tend to be price conscious. As such, many retailers might think about deeply cutting product prices with massive seasonal sales. However, this strategy has a number of negatives associated with it, chiefly among which is that price slashing also negatively affects revenue generation. In fact, many stores last year blamed missing their financial forecasts on the fact that they cut prices so heavily during the holiday shopping season to spur sales.
This can be even worse when several retailers get involved in “price wars” with their competitors, which can even led to items being sold at a loss.
Contrary to common belief, the Journal of Economic Psychology study suggested price wars may not even be necessary to winning customers. While the study did note that customers are very cost-conscious, they just want to know they are getting a discount on their purchases – they don’t actually mind if they can get the product for less money elsewhere.
The study was a two-shop consumer search experiment. People were more likely to purchase a discounted product at the store they were currently in (whether digital or physical) instead of making the effort to find the same item elsewhere, even if it may be available at an even lower price. This suggests that, despite the notion of the bargain-hunting shopper, this habit may not be quite as prevalent as previously expected.
“There are many aspects that influence consumers to buy a product including marketing and idiosyncratic preferences, but in this study we were able to remove those influences and isolate how price framing influences consumer search behavior,” Associate Professor Bayer told Phys.org. Bayer continued, adding that shoppers may have a tendency to overvalue a discount seen in store, but undervalue the potential of getting another discount elsewhere.
For retailers, this should highlight the importance of price framing. Offering low prices can obviously encourage more sales, but price point isn’t the end-all, be-all. Other perks, such as great customer service, flexible shipping options and loyalty programs, can be used to get shoppers in store, where offering the lowest price may not necessarily matter. Merchants should make sure all of their eCommerce operations are working in tandem to create a memorable shopping experience, as that may do more to drive sales than simply offering the lowest prices.