Retailing psychology among ingredients of your flat white
If you feel like you’re being manipulated by that $4.50 large flat white or $4.99 packet of biscuits, then you might well have been targeted by psychological pricing.
This is a strategy used by retailers and marketers to essentially play mind tricks on consumers. A common example is that of odd pricing, when something is priced with .99 at the end, rather than rounding it up because, apparently, there is a huge difference psychologically between $9.99 and $10.
A research paper by Massey University showed consumer demand increased more than expected for goods at odd price points, but the exact reason was unknown.
First Retail Group managing director Chris Wilkinson said odd pricing was a popular tactic, especially where a business’s pricing was frequently compared with competitors.
A more recent trend has been what Wilkinson called ‘‘confident’’ rounded pricing, where rounded numbers are used.
These were usually presented in a bold way to surprise customers and command action. Think about those Kmart signs that shout at you to buy their $8 T-shirts.
Restaurants used this type of pricing for the confidence factor.
‘‘Also it’s seen as a respectful delivery of pricing, especially as they have a deeper connection, as consumers are more guests than a straight transaction.’’
Research from the Journal of Consumer Research showed shoppers were drawn to prices with rounded numbers when a purchase was motivated by feelings, such as buying something for a family holiday.
A rounded price – for example, $10 – encouraged consumers to rely on feelings, while nonrounded prices, such as $9.98, prompted them to rely on reason when evaluating products, such as buying a camera for a class project.
These theories suggest that recreational and personal products like clothing and holiday packages could be more successful sold with rounded prices, while practical products like appliances could suit non-rounded prices.
Wilkinson said other psychological pricing methods commonly used by retailers included ‘‘more of less’’, where displays featured large volumes of one type of product, driving confidence and stimulating action.
There was also the ‘‘limited quantities’’ tactic, which suggested to consumers that they were at risk of missing out.
Multi-purchase offers (the buy one, get one free type thing) were also popular to drive volume purchases.
Pricing was typically influenced by competition and when retailers offer price promises, consumers would notice that the special deal is only a few cents lower, Wilkinson said.
But it is enough to be cheaper than competitors, without compromising consumer perceptions.
There was also obviously a whole lot more behind pricing than just psychology.
Take coffee as an example. New Zealand had one of the most competitive coffee industries in the world and sold coffee for a lower price than a lot of European countries. The cost of coffee could fluctuate depending the price of coffee beans and milk, the exchange rate and wages.
Consumable costs are also factored in, such as ground coffee, milk, takeaway cups and lids, flavouring such as cinnamon, and sugar or sweetener.
Milk made up a huge part of the costs, especially for customers ordering a large cup.
Wilkinson said consumers were not always motivated by price.
‘‘Consumers are increasingly driven by availability and certainty as their lives get busier and trips to the store become destination decisions.
‘‘Price is still a factor, but the immediacy and confidence a product is there, available and convenient can often eclipse cost, [as long as it’s reasonable].’’
New Zealand has one of the most competitive coffee industries in the world.