As marketers, bloggers, or business owners, you will most likely come to deal with the process of pricing your products or services.
The thing is, many folks struggle with this process because although they understand their customer’s needs, they aren’t experience with what to charge people for their work.
Below I’ve analyzed a few recent research studies that dive into pricing of products and services in hope that you might better understand how to price your own goods.
1. Comparative Pricing: Not Always Optimal
One of the first techniques that many marketers attempt in forming a new pricing strategy is to directly compare their price with that of a competitor.
“Hey, my software is 30% less than this popular option, why not buy mine?”
The problem is, comparative pricing isn’t always as reliable as marketers think it is, and can effect costumer’s perceptions of the product in a few different ways.
Consider this scenario: Buying Aspirin…
You walk into a drugstore and see the familiar sign inviting you to compare the price of the store’s brand of aspirin to a national brand.
What do you do?
According to Itamar Simonson, you may not go for the cheapest.
Instead, you may choose the major brand because you perceive it as the less risky choice. Or you may not buy anything at all.
This new research from a Stanford marketing study has shown that asking consumers to directly compare prices may have unintended effects.
Simonson found comparative pricing isn’t always favorable because “it can change the behavior of consumers in very fundamental ways.”
Consumers may decide not to buy at all or to minimize what they perceive as a heightened risk instead of following the advice that the marketer had in mind.
The study analyzes the effect of implicit and explicit comparisons to arrive to this conclusion.
Implicit comparisons occur when a customer takes the initiative to compare two or more products.
Conversely, explicit comparisons are those that are specifically stated or brought up by the marketer or advertiser.
To test the effects of comparative advertising, Simonson & Dholakia set up two trials.
The researchers listed (for sale) a number of top-selling albums in CD format, such as “The Wall” by Pink Floyd (hey, not too bad of taste either ;)).
The cost of the CD’s put up for sale always started at $1.99.
They then “framed” these auctions in two very distinct ways.
The first way had the CD ‘flanked’ with two additional copies (of the same CD) that had a starting bid of $0.99.
The second had the original CD flanked with two copies starting at $6.99.
The results seemed clear: The CDs flanked with the more expensive options ($6.99) consistently ended up fetching higher prices than the CDs next to the $o.99 offerings.
“We didn’t tell people to make a comparison; they did it on their own,” said Simonson.
“And when people make these kinds of comparisons on their own, they are very influential.”
In order to test the effects of explicitly telling the consumers to compare, the researchers re-did the experiment with the same settings, only this time they outright asked consumers to compare the $1.99 CD with the other offerings.
The results of this showed that when explicitly stated to compare, prices of the adjacent CDs became statistically irrelevant to what the bids were on the middle disc.
Additionally, buyers became much more cautious and risk adverse in their purchasing of the CDs:
“The mere fact that we had asked them to make a comparison caused them to fear that they were being tricked in some way,” said Simonson.
The results were that people became more timid in every aspect imaginable: fewer bids, longer time on their first bid, and less of a likelihood to participate in multiple auctions.
“Marketers need to be aware that comparative selling, although it can be very powerful, is not without its risks.”
Think about that the next time you directly compare your offering to your competitors.
Instead, you might better benefit from highlighting unique strengths and placing an emphasis ontime saved over money saved…
2. Selling Time Over Money
“It’s Miller Time.”
For a company selling beer, this type of slogan might come off as somewhat of an odd choice.
But according to new research which advocates the benefits of “selling time” over money, it may be a perfect choice.
“Because a person’s experience with a product tends to foster feelings of personal connection with it, referring to time typically leads to more favorable attitudes—and to more purchases.”
Why would selling experience (or time spent) with a product work so much better in some instances than discussing the products favorable price?
Aaker noted that many (around 48% of those analyzed) advertisements included a reference to time, noting that many marketers seem to innately understand the importance of time to a consumer.
Unfortunately, very little in the way of actual studies had been done to back this up.
In their first experiment addressing this, Aaker and her co-author Cassie Mogilner set up, of all things, alemonade stand using two 6-year olds (so it would appear legitimate).
In this experiment, the lemonade sold could be purchased for $1-$3 (customer selected) and a sign was used to advertise the stand.
The 3 separate signs to advertise the lemonade were as follows:
- The first said, “Spend a little time and enjoy C&D’s lemonade”
- The second said, “Spend a little money and enjoy C&D’s lemonade”
- The third said, “Enjoy C&D’s lemonade” (neutral sign)
Even with this lemonade example the results were apparent.
The sign stressing time attracted twice as many people, who were willing to pay twice as much.
To further drive this point home, a second study done with college students (and iPods) was conducted.
This time, only two questions were asked:
- “How much money have you spent on your iPod?”
- “How much time have you spent on your iPod?”
Not surprisingly considering the last study, students asked about time demonstrated far more favorable opinions of their iPods than those asked about money.
The researchers thought that:
One explanation is that our relationship with time is much more personal than our relationship with money.
“Ultimately, time is a more scarce resource—once it’s gone, it’s gone—and therefore more meaningful to us,” says Mogilner.
“How we spend our time says so much more about who we are than does how we spend our money.”
Aaker and her colleague were not done yet, however.
Determined to test whether or not all references to money would lead to a more negative output (due to the participant being reminded of how much they spent on a product), they conducted a similar experiment at a concert.
This time, the “cost” was actually time, as the concert was free, but people had to “spend” time in line to get the good seats.
The two questions asked by the researchers in this scenario were:
- “How much time will you have spent to see the concert today?”
- “How much money will you have spent to see the concert today?”
Even in an instance like this, where time was the resource being spent, asking about time increased favorable opinions toward the concert.
Not only that, people who stood in line the longest, or the people who incurred the most “cost”, actually rated their satisfaction with the concert the highest.
“Even though waiting is presumably a bad thing, it somehow made people concentrate on the overall experience,” says Aaker.
So what’s the deal here?
Marketers need to start being aware of the meaning that their products bring to the lives of their customers before they start focusing their marketing efforts.
And one more thing to think about…
The study notes that the one exception seems to be any products consumers might buy for prestigevalue.
If you aren’t in the line of selling sports cars or tailored made suits, you most likely won’t have to deal with this, but the point remains:
“With such ‘prestige’ purchases, consumers feel that possessing the products reflect important aspects of themselves, and get more satisfaction from merely owning the product rather than spending time with it,” says Mogilner.
Factor these considerations of the important of time next time you go about pricing your product, and you’ll see that catering to consumer’s most precious resource, their time, can be more persuasive than even the most drastic of price reductions.