Tips | March 3, 2014

Five pricing tricks to watch for

What’s a better deal: three-for-the-price-of-two or 70% off?

The point of the question is not to test your mental arithmetic but to demonstrate that the way retailers discount goods can be tricky – and can require a lot of thought to evaluate.

Add to that another question: would you react differently if the deal was on for “a short time only”? The “limited time offer” is another example of price framing that researchers in the United Kingdom and Germany examined to test how much influence they have on shoppers’ choices. The discussion paper by academics Steffen Huck, Julia Schmid and Brian Wallace was released in November 2013 and reveals useful insights for shoppers. They found all of the different pricing techniques had some negative impact on consumer decision making.

1. A 3-for-2 offer is termed “complex pricing” or, even more technically, as non-linear pricing. The authors write that the choice is simple for a shopper who wants to buy two of an item (they will likely be happy to get a third for free) but that the choice is much more difficult for someone intending to get just one. But the study finds that of all the types of pricing tested, this type causes shoppers the fewest problems.

2. “Reference pricing” involved simply seeing an irrelevant, higher “former price”. So the item was not actually discounted but the reference to a former price suggested it had been. Discussion of this technique dates back at least as far back as this famous 1981 paper from Steven Salop and Nobel Prize recipient Joseph Stiglitz. Reference pricing is closely related to the framing effect. A lesson here might be to shop around enough to truly show if the offer is a good deal – or whether a better one is available elsewhere.

3. The third pricing trick is called “baiting” and involves advertising a very good deal but with the catch that it is only “while stocks last”. In theory, the stocks might be limited to only one item available at the discount, hence the advertised price being subject to availability. The paper says baiting has a medium effect on shoppers behaviour: it is not the most nor the least powerful. It taps into our tendency to be overly eager to avoid losing out – a type of loss aversion.

4. A time-limited offer is when sellers do not guarantee the same price if the customer wants to search elsewhere before buying. This creates a sense of urgency and pressure to buy. But the study finds that refusing a time limited offer also has implications later on: shoppers are perhaps reluctant to return to that store believing the price will have risen (a potentially false perception, taking the retailer at face value), instead preferring to buy elsewhere.

5. Drip pricing – highlighted earlier on eZonomics – “emerges quite clearly as the worst culprit” of all the pricing techniques the researchers tested. Drip pricing is when the price is split into separate components, with additional fees (for delivery, paying with credit card, adding features and more) excluded and “dripped in” as the transaction progresses. This means the advertised price might be lower than the final price and comparing prices is difficult. The researchers write that during a web trawl they found cases of up to four compulsory price drips. It can pay to be particularly cautious of this type of pricing because it created the “most striking result” of any of the techniques examined in the discussion paper.

eZonomics team
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