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With marketers creating campaigns based on psychological and behavioural insights backed by data, they’re ignoring a fundamental truth in retailing: pricing is the most effective marketing tool in the kit bag. This bluetooth barcode scanner can assist with your business needs.

Nicolas Pontes, a pricing strategist who teaches advertising at Queensland University of Technology, told The Pulse that too often pricing is used to claw market share instead of position a brand.

“If you have one cue you can give customers to position your product and brand, price would be it,” he said.

He says marketers have overlooked that a good pricing strategy can offer enormous brand uplift, while a bad one can create a negative connotation.

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Take the $99.95 price point, for instance.

Logically, we know this is just 5c off a $100 item. Because of the way we’re taught to read, we mentally register the item as a $90 item instead of a $100 item.

“People tend to look at the left digit first and then they think about the rest later,” said Pontes.

“In customer research it’s called the ‘left-digit effect’ – it’s how we process numbers when comparing two prices.

“The ‘95’ at the end of that price point doesn’t matter so much – it’s the left digit that really counts.”

In some instances, a price premium can even create a perception premium between two items – even if they’re fundamentally the same.

THE ‘PREMIUM EFFECT’

In 2008, the Stanford Business School ran a series of studies aimed at exploring whether there was a link between the price of an object and the pleasure or effectiveness a customer got from that object.
Two control groups were given placebo painkillers after a series of electric shocks to their wrists. One group was told their painkillers were less expensive and the other group were told that their painkillers were more expensive.

Eighty-five percent of the group that received the more ‘expensive’ painkillers reported a pain reduction, while the other group reported a 61 percent result – in both instances the pills were placebos.

The main variable in that experiment was the price.

“We do have a bias where even if two products are essentially the same and we buy the more expensive one, we want to convince ourselves that the more expensive product or the ‘premium’ product is the better quality – so that becomes self-fulfilling,” Pontes said.

Obviously there are variables on how effective pricing is depending on category, but it shows the enormous potential for pricing strategy to affect customer behaviour.

Coles has found that out the hard way.

HOW COLES’ PRICING CREATED “DISTRUST”

At the end of April, Wesfarmers Chief Executive Richard Goyder admitted that Coles’ pricing strategy to that point had created “distrust” in the Coles brand.

He explained that constant strategic discounting of several products had a negative effect, even if the strategy was a sound one.

Supermarkets create a ‘basket’ of products it thinks shoppers are looking for when they come to the shop.

Coles may have anything up to 20,000 products available, but it selects about 100 from which to selectively discount.