How a price is perceived as good or bad, low or high: What happens in the mind of the consumer?
When we enter a store or website and see the prices, usually we know if a price is good. Whatever you call it, an inner feeling or common sense it is giving us an indication about the price.
What happens in the mind, how we get to this point when we know the price is good or bad, how the perception of the price produces its judgment?
This is a very intriguing question, fundamental to marketing decisions.
When a price gets our attention it enters a complex system of relevant points to which we compare it. In our mind we hold many points of reference – other prices of comparable products, same product in other stores, what we get for the price – product quality, value and experience, the available budget, expectations for future income, memories of prices of past purchases, the vague feeling what the product must cost or “expert” knowledge of the cost etc., etc.
The flow of consciousness
In my mailbox I receive another offer for a vacation, 7 days, package for two. The price though does not seem right. Why isn’t the price good and how I decide this?
How much I paid last year? What other offers I have received? What amount would be my limit, other expenses will fall in that budget for entertainment, drinks, restaurants and god knows what else. Is it better to rent a house, will feel more comfortable. Friends went to Corfu last year, fantastic small hotel and the price was normal…
The flow of thoughts is gaining momentum. You remember how much you need a vacation. Wonderful pictures of previous holidays appear in your mind. However the price in the offer is pretty high. You feel a little crushed. You go on looking at other offers and stumble upon a house, good location, next to the sea shore, looks nice actually. The price? Now we are talking. The feeling of discovery overwhelms you. You look at the pictures, read the description again, you search for the telephone number and make a call.
Let’s look at the moment of perception. Next to the efforts of the mind to compare and assess the price based on the available information, in the process participate emotions. The emotional coloring of price perception can for example lead to a positive price- value or price-experience judgment. Memories, attachments, affections make you feel “the price is worth the money”.
At a later stage emotions can act as a behavior trigger, accelerating the purchase decisions. If the price is high and you are disappointed or even angry, the product is definitely not worth it, the process ends here and you decline the purchase. The trace left in your mind may influence you the next time you consider that type of product and then this brand, store or distributor will be left out of your field of awareness. On the other hand, if you come across something you have liked before that is now offered at a 30% discount, the joy of discovery may push you to an immediate purchase.
Why is it important to be aware of the price reference system – imagine for your customers the price reference point is the bed price in a double room and in your offer you have shown the all-inclusive price. The comparison will not be to your advantage.
It is worth noting that the reference system is dynamic and changes every time new evidence comes along. A discount of 40% on vacations will bring down the perception of a good price. A salary increase or an anniversary for which you want to arrange an unforgettable trip will mean higher budget and will raise the level up. The new information changes the position of the reference points and so it goes until the next time.
The references differ by product category and have different weight for individuals.
Sometimes they are not obvious for the marketer and researcher. Openly people may be reluctant to admit (even to themselves) the actual importance price plays in their decisions and go in detail about their perceptions.
Some research methods work better. While the research approach to get an understanding of the price reference system is always qualitative, depth interviews will give better results than groups in some cases and in other – it will be well worth it to go for ethnography.
Ethnography is very helpful when investigating the signals in the shopping environment that tune consumers’ price expectations. The promo signs, the signs with the sales percentage number, the grouping of premium brands in one section of the store or mall are e.g. such signals.
Many things may go wrong in how price is communicated and consumer expectations tuned. A well calculated price may be perceived the wrong way.
For example when a consumer walks in the section of the store where all price are high and passes by a discounted item, he would presume that this product is also with a high price. Unless you put a huge sign to signal it, the price change will go unnoticed.
If you would like to share cases and observations on consumer perceptions of price, you may do so in the comments below or send us an e-mail.