Friday, January 22, 2010

Play with Price

In the United States, we usually pay what the price tags says we should pay. In many other countries, they expect you to dicker a bit.

Sure we may do that when we are buying a car or a house, but what about other items?

Look at this from

Don't Let This One Get Away!

One notable effect of the economic downturn is the marked increase in consumer frugality. Marketers near and far are in hot pursuit of savvy pricing strategies that prod wary customers into buying.

Well, here's a tactic that some researchers say is worth a try: "steadily decreasing discounting" or SDD.

In a recent study, these researchers worked with a kitchen store to offer promotions of wine-bottle stoppers. They employed both SDD and a hi-lo pricing strategy, a much-used tactic in which sellers set relatively higher everyday prices but offer frequent price promotions.

  • In one test, the hi-lo strategy offered the stoppers (regularly priced at $24.95) at 20% off ($19.95) for three days and then returned them to full price.
  • In a separate test, the SDD promotion offered the stoppers at 30% off the first day ($17.45), 20% off the second day and 10% off the third day ($22.45).

Results: The hi-lo tactic increased sales by 75%; SDD increased sales (averaged to $19.95) by 200%.

The researchers offer another example of how SDD might work for you. Say you sell a television for $999 (regular price). Using hi-lo, you might discount it to $799 for a week. However, "[o]ur research supports the use of an SDD tactic," the researchers state, "in which the TV is discounted to $799, and then ... the retailer offers at least one additional sale [price], such as $899" before returning it to the regular price.

Why does SDD encourage consumers to buy? "Higher future price expectations and greater anticipation of inaction-regret appear to be the underlying mechanisms that lead to the effectiveness of the SDD tactic," the researchers conclude.

The Po!nt: Say it with SDD. Employing a pricing tactic like this one, which creates a unique sense of urgency, may encourage wary consumers to buy more immediately.

Source: "Ending a Price Promotion: Retracting It in One Step or Phasing It Out Gradually," by Michael Tsiros and David M. Hardesty. Journal of Marketing, 2010.

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