If you’ve been to Amazon, which is something even people living under a rock have done, so I’ll assume you have as well, you’ll notice that a huge number of products show a regular price slashed through and a lower, discounted price.
Some of these prices never change, so you may be wondering what the point of showing the higher price was to begin with. Well, there are a couple of reasons.
- It can create a baseline or anchor
- People have a point of comparison
- Reduced prices can create a sense of urgency
1. Making Your Product Appear Better Through Comparison
According to Dan Ariely in Predictably Irrational, consumers can anchor to prices in fairly arbitrary ways, so the higher price can create a baseline of what someone would expect to pay for a particular product. By then discounting it, you’re creating a point of comparison; a standard price versus the better, lowered price. This can put your product in a better light, even though people are comparing something to itself.
2. Limited-ish Time Offer
The reduced price can also give people a feeling that this lower price may not be permanent. After all, if it were, you wouldn’t see the baseline price, right? Therefore, people will feel the need to purchase now so they don’t come back later to a higher price.
When I worked at an auto body repair shop, we offered a few full car repainting services at different levels of quality. They were always “on sale.” We’d tell people that we weren’t sure when the discounts would end, but that we would honor the price for the next 30 days with an estimate, even if the sale ended before then. This gave people a limited time frame to get work done, even if it was kinda imaginary. That said, it worked. People on the fence would often schedule an appointment so as not to miss out on the “sale.”
3. Specials and Discounts
I have two major weaknesses: makeup and yarn. It is not uncommon for me to have a dozen lip colors (glosses, stains, lipstick, balms, ect) in my purse alone. That’s just lip stuff. And just what I have on my person. Not including what I have at home. The point of my nattering on about this is that so much of my purchases have been due to perceived sales and discounts on the part of retailers.
Walgreens, CVS and Rite Aid have weekly sales that offer buy 1 get 1 50 % off on certain makeup brands. They rotate through basically every major makeup brand over the course of a month. To make up for these discounts, they increase the price of the makeup. I’ve discovered that a purchase made during a sale week is just about the same as the non sale price at WalMart or Target. However, I still end up spending most of my money at drugs stores because sale!
Some Caveats About Raising and Slashing Prices
Whether increasing then presenting discounted prices for all of your products or just certain products is something you may want to test on your own. I’ve seen websites taking both approaches, but I’m personally not sure if results depend on industry or an all or some approach.
Be careful how you list your prices through AdWords, especially through Google shopping. If you do increase prices so that you can discount them, make sure that your discounted price is what AdWords shows. If you’re writing your own ads, that’s probably not an issue, but if you’re using a spreadsheet to provide data for customized ads, you don’t want to be competing with other ads showing showing your inflated price.