How To Increase Sales With Price Perception

Have you noticed that more and more online shopping platforms are offering a detailed look into the history of a product’s price? Maybe it’s an apartment on Zillow, a plane ticket on the United app, or a piece of apparel on Amazon.

Marketers are increasingly combatting consumer uncertainty with clever pricing strategies designed to make customers feel like they’re getting a great deal.

How consumer uncertainty is impacting shopping behavior

People are feeling uncertain, and that’s impacting how they shop. As Shopify recently reported, record inflation and hefty price increases for essentials are a big concern for shoppers. As spending power decreases, 81% of consumers report changing how they shop to manage expenses, and a growing number of people (42%) identify as “not impacted financially, but cautious with spending.”

A recent NielsenIQ report found:

• 52% of consumers feel less secure in terms of economic stability.

• 29% of consumers feel less secure in their ability to meet daily expenses.

• 25% of consumers feel less secure in their household income level.

US consumers are cutting back on travel, restaurants, and other non-essential items to combat growing insecurity.

In another study conducted by Google and Ipsos in November, 80% of holiday shoppers said they had researched or browsed before making a purchase, compared to 20% who said they had purchased on impulse. This messy middle of research is where customers are won and lost in the customer experience.

As Dennis Wakabayshi one of the world’s leading voices in customer experience, social media, and digital marketing recently said:

And to be brutally honest, to truly understand the mechanics of making money with customer experience (CX), we only need to focus on the two most important moments in the customer journey: the moment they consider us, and the moment they commit to us.

The “consideration stage” of the customer journey is where reputation and reach overlap. This includes touchpoints such as social media, search, and traditional media. The “commitment stage” is where reach and relationship overlap and includes touchpoints like landing pages, customer care interactions, and mobile apps.

And the information conveyed (i.e. price) in the customer experience and how it’s perceived and benchmarked in the customer’s mind matters more than ever. Of course, one (not so) simple solution to ease consumers' nerves and drive purchases in the commitment stage is to lower product prices through discounts.

But it’s not necessarily about lowering prices. It’s about making customers feel like they’re getting a better deal. Displaying price history is proving to be an effective way of doing that.

How visibility of price history influences customers' purchasing decisions

Through a series of studies, the authors of a recent Harvard Business Review study found a very interesting trend in consumer psychology. They sought to answer the following question: how does a detailed look into products’ historical prices influence buying decisions in the customer journey?

To explore this question, they conducted a series of experiments with a total of more than 5,000 business school students and working adults across the U.S. and Europe. They measured the impact of different kinds of price shifts on people’s interest in purchasing products such as plane tickets, a new TV, Bluetooth speakers, or a reusable water bottle.

First, they found that when consumers saw that the current price was lower than it had been in the past, they were more likely to buy now, because the current price seemed like a good deal.

Similarly, when consumers saw that the price today was higher than it had been in the past, they were less likely to buy now, because the current price seemed like a bad deal.

Put simply, buyers are more likely to buy now if they see a large price decrease because they’ll assume that the price will go up if they wait.

However, the picture gets a whole lot more complicated.

How to play with a product’s price

As a marketer or seller, when playing with the price of a product it’s important to consider the frequency of the of the historical price shifts that you display.

In their studies, they found:

…if consumers were shown at least three changes in the same direction, they were likely to assume the price would continue to move in the same direction, whereas if they were only shown one or two changes in the same direction, they expected the price to change in the opposite direction.”

In other words, if a product that’s currently priced at $100 was $200 two weeks ago, $150 last week, and $125 yesterday, consumers will expect the price to continue to fall, making them likely to hold off on purchasing.

But if they only see that the current price is $100 and the price two weeks ago was $200 — or if they see that it was $200 two weeks ago, $50 last week, and $200 yesterday — then consumers are more likely to expect that the price will go back up again, pushing them to buy now.

So what does this mean for sellers and advertisers?

If your goal is to encourage consumers to buy now, HBR research suggests that either a single large price decrease or a series of smaller price increases will be most effective. It may be tempting to slowly lower the price over time, but the data shows that this can lead consumers to assume that the price will continue to fall, making them hesitant to buy.

But if they just see a single price drop, they’re more likely to expect a reversal (i.e., a single large increase) in the near future, pushing them to buy the product now.