How to influence the “Price is Right” decision
John Tobin, Data and Market Intelligence Specialist
Image by Gerd Altmann from Pixabay
Lowering of product prices is an effective means of encouraging consumers to purchase products they may not ordinarily purchase, as frequently or in larger quantities. Recent research by Harvard Business Review has shed some light on how different price reduction/promotion strategies can yield different results and different rates of success. This article will take a look at how consumers respond to price reductions and/or price increases, how this behavior can differ when consumers have a greater knowledge of a product’s pricing history and consequently the implications this has for Irish food businesses selling to consumers.
To explore this question various experiments were conducted to measure the impact of price shifts. Participants were shown the same products, but the direction of the price (up/down) and the frequency i.e. the number of increases or decreases in the historical prices for the product were shown, was varied. Participants then had to make a decision based on the information at their disposal whether or not they wished to make a purchase.
This presented a number of consistent trends. Firstly where the price was seen to be lower than in the past was a positive motivator to purchase. Likewise, if the price was higher than in the past the opposite is the case. However, when participants were provided with a series of price shifts for a product, this was found to have a more nuanced effect on consumer behavior. For instance if consumers were shown three or more consecutive price reductions for a product. They were more likely to delay purchasing such a product due to the expectation that its price would be reduced further. Whereas if consumers see a product is priced at €3 today, was €5 two weeks ago, €2.50 last week and €4 yesterday, this raises the expectation that its price will go back up again and pushes consumers to purchase now.
It was found that for businesses that wish to increase sales now, a single large price reduction or a series of small price increases motivated consumers to purchase now. The researchers acknowledged there might be a temptation to apply a series of small price reductions over time in an effort to capture more value from consumers. However, where consumers have access to such information and can see a consistent trend, the expectation is the trend will continue and potentially lead to consumers delaying a purchase on the expectation it will be cheaper in the future. Hence reducing prices in this manner may in fact have a negative impact on increasing sales.
One such example of relevance to the food industry that can help consumers to see historical product prices to decide whether to make a purchase is CamelCamelCamel. This website is a price tracker for products sold on Amazon. For the purposes of this article, the pricing history of a 24 pack of Heinz Baked Beans available in the UK market is reviewed. Below, is a screenshot of the pricing for this product over the last 12 months. From the below chart we can see that the cheapest time to buy this product in the last year was in June at £18.15 and the price peaked in March at almost £26. Currently the price sits at about £22. Compared to the last 6 months, this price is at the lower end of the range, which may entice consumers not to delay purchasing this product as its price has remained relatively and so the possibility of a price reduction might appear to be low.
In conclusion, it is important for Irish food businesses to be aware how consumers interpret price changes in order for price promotion strategies to be effective and drive sales if this is the desired outcome. In addition price-tracking websites for platforms such as Amazon are now freely available to consumers. So this should also be considered when pricing strategies for products are being developed.
For a greater understanding of how consumers are behaving in the current inflationary environment, please click here to access Bord Bia’s latest Inflationary Impact Study.
For a suite of negotiation and cost inflation resources designed to support Irish food companies impacted by inflationary pressures, click here.
CamelCamelCamel. (2023, February 3). HEINZ Baked Beans, 415 g (Pack of 24). Retrieved February 3, 2023, from camelcamelcamel.com website: https://uk.camelcamelcamel.com/product/B001K45WGW?context=search
Evangelidis, I., & Gunadi, M. (2023, January 20). Research: How Price Changes Influence Consumers’ Buying Decisions. Harvard Business Review. Retrieved from https://hbr.org/2023/01/research-how-price-changes-influence-consumers-buying-decisions