The psychology of pricing
In the true spirit of social media, I learned last week about a phone call an associate had received offering him a discounted rate for a product he’d used for many years. Suffice to say, he took to social media to ask whether such discounts were commonplace, and indeed what the discount meant for the perceived value of said product. Not only did this encourage a debate about the value, but it also laid bare that some people were getting it for less than others.
It’s the kind of issue that cropped up in some new research by the University of Texas. It looked at how our relative sense of power influenced our perception of a price.
“The degree to which one feels powerful influences which type of price comparison threatens their sense of self-importance and, in turn, affects the perception of price unfairness,” write authors Liyin Jin, Yanqun He (both Fudan University), and Ying Zhang (University of Texas, Austin).
The researchers go on to explain that whilst price differences are quite normal, the moment customers believe there to be unfairness at play, their sense of value in that product will plummet.
Consumers have two main ways of comparing the price of a product. They can compare the current price against the price they themselves paid for it in the past, or they can find out from other customers what they have paid for it.
The research discovered that when consumers felt powerful, they felt slighted much more by perceived unfair pricing in comparison to others, but this sense of unfairness was not replicated when they compared only with themselves. So, in other words, if the consumer is in a position of power, you play a risky game by offering differential pricing if there is any chance of customers comparing prices with one another.
“Our findings suggest important ways that marketing professionals can engage customers of different power statuses,” the authors write. “For example, when marketing to high-power customers, one can better elicit preference by highlighting the special treatment that they are receiving in relation to other customers. Conversely, when the target customers are relatively low in power, loyalty may be better cultivated by highlighting the consistency in service or the level of commitment to these customers.”