The Price is…Wrong?

When it comes to shopping, prices are everything.  No-one wants to look like a cheap skate, but equally no-one wants to spend a fortune.  But just how far do our hostilities towards expensive products reach?

Robert Cialdini author of Influence: The psychology of Persuasion cites an example of a friend of his who owned a jewelry shop.  In this shop were Turquoise necklaces worth $250 but on offer at $150.  The stock was not shifting and so one day the owner instructed the floor manager to reduce them by $40.  When she turned up to work she found that all neckleces had been sold, and not only that but they had been sold for a very large profit at a price of $400 per unit.  The key to this was in the fact that the floor manager had misheard the owner on the phone and had marked them up to $400 rather than reduce them by $40.  People that came in assumed that the higher priced item was because it was good quality and they didn’t know much about Turquoise and therefore associated ‘expensive’ with ‘good’.  This of course was blind luck on the owners behalf, but highlights a significant hole in our psychology when it comes to buying goods.  When the price is high, people automatically expect a level of quality and will be prepared to pay the higher price in place of a solid understanding of what they are buying.

This was something that I experienced first hand whilst working for a letting agency.  Often people would come to our company complaining that another company in town could not let their house and that they want to come to us to get a different perspective and were generally willing to accept that a reduction in rent would help their case.  What we found was contrary to the landlords expectations and indeed our own.  When we arrived at the house for an appraisal, we found that the house was very reasonably priced and even suggested to the landlord that we would offer it at a higher price.  Desperate, the landlord gave in and said something to the effect of ‘you’re the experts’ and we would market the house in a similar way the other agency did, on the same websites but at a higher price.  The results confirmed Robert Cialdini’s understanding of marketing.  In a few days we had several viewing lined up and within the week the house was let at a higher price than the landlord had thought possible.  When the price was lower, people would not give the house a moments thought, assuming it to be cheap because it was rubbish.  Again this response of expensive=good brought people flocking to our agency.

This is something that all who purchase a product or service should think about.  People are all too keen to assume that money can be used to replace knowledge.  If they spent just 5 minutes researching their market, they could get the deal of the year.