The Impact of Perception of Pricing

I caught a quick, one-sentence summary on the news the other day about a recent study that concluded consumers’ perception of whether a food was healthy or not were based on price.  Curious to know more, I researched the study and thought that you would be interested in learning about it.  The results are applicable to pricing, whatever product, service, or information you are selling.

The study was conducted by Fisher College of Business at The Ohio State University in Columbus with 884 subjects, a combination of adults and college students, in five different experiments.  The first one involved telling participants about a fictitious new product called Granola Bites.  Half of them were advised that the product received a grade of A- for healthiness, and the other half were instructed it received a C.  They were asked to estimate the price of the product.  Those in the group with the A- rating guessed that the product was more expensive than those in the group who had been told the C rating.

The second experiment had the participants consider two breakfast crackers that were identical.  The researchers explained that one cracker had a higher price than the other and asked which one was healthier.  Overwhelmingly, the participants chose the higher-priced cracker.

In the third experiment, researchers told participants that a co-worker would be ordering lunch.  Half of them were instructed that the meal ought to be healthy.  All of them were able to view the options of two different chicken wraps, including the price.  The members of the group that was instructed to select the healthier choice picked the expensive one more often.

The fourth experiment offered two granola products to the participants.  Both were promoted as benefiting eye health, one with vitamin A and one with DHA.  When the DHA was priced higher, participants concluded that DHA was more important to eye health than when the products were priced the same.

The fifth experiment asked participants to evaluate a fictitious product with the slogan “the healthiest protein bar on the planet.”  One group was told the price was .99 and subsequently read many more reviews on the product than the other group that was given the price of $4 for the product.  The first group could not believe that the product was healthy due to the price and attempted to find the truth about it via reading more reviews.

The study was well-designed in the diversity of the participants involved and the five different experiments completed to assess the results.  The outcomes of all five arrived at the same conclusion that price affects consumers’ perception of healthiness of a product.  A healthy product has a higher price.  Some of this perception may have come from experiences of encountering healthy foods that had higher prices.  Some may have come from reports that buying healthier foods costs more.  A 2013 study at the Harvard School of Public Health in Boston found that was a small amount, $1.50 per day, but the healthier food was higher.

In reality, consumers can find healthier choices by watching seasonal offerings and sales and becoming informed  through reading and looking at labels.  The trouble for businesspeople who are setting prices is that consumers don’t take the time to become informed.  They go with the perceptions that they have acquired.  The question for your business is “What are those perceptions regarding your products, services, or information?” 

Do you know what those perceptions are?  If not, find out by asking your customers.     

This week's marketing trivia challenge is If you were pricing a healthy product, how would this study affect your pricing?  E-mail me your answer.

Think Small

Every year for the last decade, the soft drink industry has experienced a decrease in consumption as measured by volume.  This is a result of a cultural trend.  A 2015 Gallup poll found that six in ten American adults were attempting to avoid soft drinks, whether diet or regular.  They were making other choices such as the wide variety of teas, coffees, and waters.  They were shifting their tastes.

Those who are still drinking soft drinks increasingly view them as an indulgence.  The markets that are particularly concerned include moms and upper-income consumers.  They want portion sizes that reflect these reduced consumption preferences.   

Partly to address that situation, seven years ago Coke offered a mini-can that held 7.5 ounces along with an 8 ounce glass and aluminum bottles.  The sales of these smaller sizes have been a plus for Coke with double-digit increases over the last three years.  In 2015 sales jumped fifteen percent in the first five months alone. 

These mini offerings are a 30% reduction in volume but an increase from 31 cents to 50 cents a can in sales.  This significant increase in revenue has contributed to more than an 80% share price gain since March 2009.  That has shareholders impressed.

I found this information interesting and wanted to share it with you for two reasons.  First, consumers are definitely thinking small.  Pay attention to the talk of downsizing and building smaller residences.  Notice the suggestions of smaller portions and portion control in food consumption.  Keep in mind that people are reducing their number of belongings.  The trend of less being more is permeating many areas of our lives. 

How is that trend impacting your business?

Second, we businesspeople are always juggling price increases, when to adjust prices, and how to present the changes.  We are concerned about retaining revenue and profitability while not losing customers.  Many of us are dealing with the concern by reducing the amount of product and keeping the price the same.  Consumers seldom notice the reduction.  If they do, some do not care that much because they don’t buy the items by the unit or pound.  They buy them by the package.  In Coke’s mini-can example, the company was obvious in its size change by creating a smaller can or bottle.  Consumers embraced the change because they wanted smaller portions and were not sensitive to the price.  They had not purchased for volume; they had bought for a small amount.

All of these considerations depend upon knowing your customers well and talking to them regularly.  That understanding helps when addressing price changes.  You will also be aware of trends within your target market and be able to adjust to them in ways that your customer will embrace and you will find profitable. 

When was the last time you interviewed your customers? 

This week's marketing trivia challenge is How has talking to your customers helped your marketing?  E-mail me your answer.

Yes, Consumers Do Want More

In anticipation of "Black Friday," last week there was a great deal of talk about retail sales. As a consequence of daily doses of dire economic commentary, consumers were curtailing spending. Bluntly put, they were worried about their incomes, their mortgages, and their financial stability.

One story on this subject that I watched reported retailers were "doing their best to lure customers into their stores with deep discounts." However, that promotional technique did not work in October. No matter how deep or ridiculous the discount, consumers were not prompted to purchase.

As a result, the story continued, some retail outlets were turning to other methods. A mall manager commented that they were focusing on "creating a festive environment and an enjoyable experience for shoppers." That mall was tapping into the spirit of the season and giving consumers a reason beyond price to shop there.

Another story about a couple of local businesses supported that approach. Owners from both of these businesses said that "personal attention worked very well." One noted that their store carried "one-of-a-kind pieces which made a more unique gift." The other stated that their customers kept coming back, and, because of that, the store's sales were even with last year. "If we can stay even with last year in this economy, we'll be fine," the owner said.

For years, the chain stores have based their sales on price and promoting the price of items. They have grown their revenues by opening new stores. They have masked the financial health of their businesses with this growth. They have not paid attention to developing their customers. They have not paid attention to what their customers want.

Customers want more than a cheaper price. Customers decide to buy a product, a service, or information because of what it will do for them, not because of its price. Once they have become interested in a product, service, or information, they may be lured into a store by a price. However, after making that purchase, they have no reason to return to the store unless the store offers another cheap price on something the customer decides to buy. This requires the store to get into a vicious cycle of offering the "cheapest" prices on the "hottest" items.


The underlying problem for these stores which base their sales on price is where they enter the picture in the customer's buying cycle. They are entering after the customer has decided to buy and before the customer has made the purchase, which is a very narrow window of time. This narrow window requires them to advertise special pricing heavily, especially during known buying times such as Christmas. If they stayed close to their customers as the two local businesses noted above did, they would be in the picture earlier in the decision, allowing them to sell the customer earlier in the cycle and make more profit doing so.

Yes, consumers do want more than the cheapest price. They want to be developed as customers and given personal attention. Are you doing this with your customers?