3 important phenomenon influencing pricing
Here are 3 pricing phenomena playing a significantly large role influencing product adoption...
Let’s start with a question, a rather sweet one...
→ “What’s the best brand of chocolate that you have ever tasted?”
When a selective group may have access to premium & finest artisan chocolates whose availability is restricted to select locations (although that’s slowly changing), most urbane population would safely quote Lindt given the how its easily available across all the leading retail stores, when a more highly selective group of people who have a thing for Belgian dark chocolates may quote Neuhaus, Leonidas, Pierre Marcolini, Galler. Also, not to forget how niche things are getting with the market for “artisanal handcrafted chocolates” increasing as of today & the liquor filled variety like Anthon Berg boasts of its own audience.
Assuming access isn’t a problem, how many of us tend to pick up these chocolates over our regular visit to the supermarket (which could be a monthly / bimonthly cadence)?
The STATS, aren’t all that encouraging.
Then again, it is not like chocolates aren’t being bought over those supermarket visits. One could still find many varieties of chocolates added to those carts.
Whether one agrees or not, for a large segment of the market the primary reasoning influencing the decision to omit these premium chocolates from their shopping lists could be “PRICING”, which is precisely what brands like Walmart have tried to cash in on over the years owing to how one could find replicas of almost everything, be it the finest blend of Bourbon whisky or chocolates. Whether those cheaper versions have been successful in comparison to their original counterparts or not is anybody’s guess though.
Pricing does play a significant role & indeed affects users’ perception of quality leading to that decision of “BUY” or “PASS”. The price point plays a deep psychological role in consumer’s perception of value.
Product teams are entrusted with the responsibility of deploying some well thought out strategies to help increase this perception of value intern reduce the “psychological burden of paying” en route to improving customer satisfaction.
One such strategy that comes in handy here in this situation is PRIMING, a term ground in cognitive psychology which is clever play by employing a stimulus to influence subjects to organically fix on a correlative stimulus. For ex: when someone says “peanut” your mind prompts “butter” enforcing you to think about “peanut butter”.
And of course, a few other strategies like introductory pricing, limited period pricing, incremental pricing are also known to have yielded desired results when it comes to influencing users.
It is interesting how the psychological studies pertaining to product pricing have explained consumption patterns as tied to price points in what is presumed to be an inverse relationship (the higher the price the lower the consumption). But, the Snob Effect, Bandwagon Effect and Veblen Effect stand as three counter-examples to this assumption.
Bandwagon Effect
Definition:
Bandwagon effect suggests that consumption by and large could be driven by social demand, as in the value perceived by the market, which is where the VoM could come into play & could also be ruled by FOMO - nobody wants to be missing out the good stuff. This is the most natural & commonly occurring phenomenon. It is also a form of cognitive bias when people blindly go for something that’s popular and is widely adopted in the market as they naturally perceive that it could be of great value.
For ex:
Driving across the highway you are most likely to stop at a local restaurant just by looking at the number of people queued up there at that instant
You are also likely to stop at a motel given the number & type of cars that are parked outside
At a supermarket you are likely to pick up that brand new packet of juice and add it to your shopping cart when you see the others at it
Veblen effect
Definition:
Veblen effect talks of how consumers may perceive the price as a direct indication of value, the higher the price the better the value perception, and it also points at how consumption could increase along with the price.
For ex:
The Stock market stands as a great example of this effect. People would just jump in and buy a stock just based on what they hear about it, at times without verifying the authenticity. It works majorly on hearsay (as much as most of it does even today), in spite of all the millions of dollars that have been splurged into building & beefing up the analytics engine in the backend
Consider Swiss watches, although today some may believe that the digital watch market has been able to nullify the demand for these mechanical handcrafted precision accurate masterpieces, the truth is far from it. Forget the crème de la crème like a Patek Philippe or a Breguet, the Mid-segment luxury brands like Omega, Tag Hueur have maintained consistent demand throughout in spite of annual price hikes
Snob effect
Definition:
Snob effect refers to how users [a section of them perhaps] may reduce their consumption of a product when few others [another section maybe] begin consuming it, the perceived value somehow seems to diminish along with the rising demand in this case.
3 ways to turn those effects into advantage play?
Given how a host of external factors influence a user’s decision to adopt a certain product, your best bet would be to sort out a plan to use that effectively and optimize it towards your goal of improving conversion rates.
But one can’t do much about hedonists / perfectionists, until there happens to be a way to classify them further into either one of the other 3 brackets where any of those individual effects could come into play.
And you marketing could be used to one’s advantage here. Some marketing routes worth exploring here are:
1. Viral Marketing
Creating content bearing the potential to go VIRAL is certainly one of the routes worth exploring here. Taking after the principles of the Idea Virus by Seth Godin the SNEEZERS & the HIVE could be used well and to one’s advantage.
2. Referral Marketing
A user signs up for a trial, uses the product and then sticks on, pays a subscription as suited to their needs. It only makes sense for a product team / the org. to hinge on that experience (UX) the user has had and push for referrals
3. Influencer / Network Marketing
Hiring people who have a star studded following to perhaps use your product samples (or even otherwise) and ride on their PR skills to get the word out into a section of the market that makes sense to you & they happen to be well connected to (network) or the larger markets (playing the role of an influencer) has also proven to be a tried and tested way to not only foster ToFu conversions but maintain a healthy retention rate across cohorts.