Is This Common Pricing Mistake Costing You Sales?
If you have an ecommerce site, how often do customers visit – often after a costly paid click – and end up leaving without buying? Are abandoned shopping carts all too common? Or, if your customers visit your retail store, how often do you see them compare several items, only to buy none of them and move on? If you stock similar items (and who doesn’t?), the problem could be your pricing.
A new study by researchers from Singapore and Yale revealed a pricing surprise: if two similar items were priced the same, subjects were much less likely to buy one than if their prices were slightly different!
This may seem counter-intuitive. Wouldn’t different prices just add confusion to the decision process? In fact, a tiny price difference seems to make the similar products more alike, and increases the probability that a decision will be made and not deferred.
In one experiment, the researchers presented two groups of subjects with a choice. They gave all subjects a dollar with the option to buy gum or keep the money. Two similar types of gum were offered. One group saw both gum options priced at 63 cents, while the other saw one gum priced at 62 cents and the other at 64. This trivial difference caused 77% of the second group to buy vs. just 46% for the first group – a 67% boost!
In retail settings, similar products may be offered at the same price. But, rather than simplifying the choice for the consumer, doing so may actually increase the probability that the consumer will buy nothing at all.
This doesn’t mean that a retailer should attempt to individually price every size and color for one sweater design, for example. That would be a logistical nightmare and most consumers don’t agonize over which size they need. But, if two sweaters are similar except for, say, one having a crew neck and the other a v-neck, pricing them a few cents apart might help sell more total units.
Give this a try and share your results! I hope at least one Neuromarketing reader with a busy ecommerce site does so – this would be a fairly trivial A/B test, and it would be great to show the effect in a real-world setting. Leave a comment with your thoughts or findings!
I’d be curious to know the sensitivity of price differences when the value was a lot higher, such as vehicles. I’d think cost difference would have to be stretched farther apart.
Could be, Joseph, but the point of the researchers was to show that an inconsequential difference in price was enough to change thinking.
Hi, I’m curios about the 77% group. Which product that sell the most, and is the price still have big influence for the customer to buy it?
In my opinion, if I was to choose between same items that have the same prices and same items that have different prices, I would rather buy items that don’t have the same prices. Let’s face it; price differentiation gives an idea to buyers that same items with different prices have different levels in terms of quality. If same items have the same prices, buyers will think that these items have the same quality and thus find another alternative for it.
Did this study say if this vast increase was people buying the cheaper of the two items? If that is the case, it is fairly easy to understand why more people made a purchase!
This is fascinating, counter-intuitive indeed but I really want to try it. My friend owns an apparel store that sells online as well. I’m sending him this in hopes we can experiment. I’ll report back the results.
Let us know how that works out, Jeph!
Correlation does not imply causation: without knowing the details of how this study was conducted, you can’t make this a general rule.
In an online course I’m taking from Dan Ariely, he mentions that flat rates are easier to swallow than choosing each time there is a price difference (because you have to stop and think about the pain of losing money). It might deteriorate if you overload with multiple price-points of more than 2 items, making it harder to process.
Most dollar stores have a single price-point for hundreds of items, which removes the burden of making price-oriented decisions of which item to purchase.
I took the same course and choose single price method as better on long term.
There is no mention of the statistics of what option people chose. Do They typically go for the higher or lower priced option. My guess would be cheaper… I guess it depends on the difference in quality of the two products…
This is an interesting observation though, and I think I will give it a try.
I’m sure you’ve heard that you should price based on the value your product delivers, rather than another metric like how long it took you to create it. This is very true, but has one issue. The value changes for each person.
That’s incredible. I used to own an ecommerce store with all of the prices being exactly the same across the board. Perhaps this blog post is a few years overdue.
I really like this post.
I agree with the comments that took issue with the correlation-causation issue this study rises. I would like more details on how the study was actually conducted.
While I understand the room for error that correlation-causation causes here there is no getting around the fact that 77% is a large difference resulting from a very small amount of money. We are literally talking about pennies.
I think there is a case to be made that people are more willing to buy something when there are price differences resulting from what I will call the savings paradox. If there are two items that are priced differently people are more inclined to buy the cheaper one not just because it is cheaper in absolute terms but it is cheaper in relative terms and they can therefore feel justified in their purchase.
Here is a link to a video on YouTube of a guy explaining the the idea I just presented. He does a good job explaining it but he is kind of aggressive about it so beware. http://www.youtube.com/watch?v=LwA7Rl_Sjpo
[…] expert Roger Dooley notes that customers may be less likely to delay their decision thanks to the differing […]