The choice of a product is not only influenced by benefits the product offer, but also by the price of the product. The lower the price, the quicker an attractive product will be purchased.
However, a drop in price also means a drop in turnover, which results in less profit. Therefore, it would be optimal to lower price perception without lowering the price - increasing product demand without losing revenue. And it's possible!
Lowering the price perception
Yang et al (2009) conducted a study on how to lower price perception. The study took place in a restaurant. Three different menus were created:
- One menu had prices with currency signs: €1.95.
- One menu had prices with written currencies : 1,95 euro.
- One menu had prices without any currency references: 1,95.
From a classical rational economic perspective, there's no difference between the three menus. The prices are exactly the same on all menus.
However, the researchers showed that consumers aren't rational - the display of the prices' currency has a big effect.
On average, the same amount of money was spent on the first two menus. But, on the third menu, without currency references, consumers spent 8% more on food and drinks compared to the other two.
Seeing a currency makes you realise it is money
The consumers' behaviour in this study wasn't rational, but the explanation is nevertheless logical. The reference to a currency makes consumers realise that the numbers refers to money, and the thought of spending the stated amount causes a painful sensation in their brains.
Dropping the reference to currency is a simple trick that everyone can use. The study shows that consumers don't always process prices rationally. More importantly, this study also shows that asking people about their price perception isn't the best method to determine product pricing.