Is it really a bargain?

I’m sure I speak for most of us when I say I’ve fallen victim to quite a few marketing tricks in the past, here’s a couple of influence techniques I’ve noticed companies often use.

£9.99? It's only £9, what a bargain!

Most retailers will advertise their products using ‘odd prices’, a figure which is just slightly off from being a nice, round number (e.g. £9.99 instead of £10). This is known as psychological pricing, customers often perceive such prices to be lower than they factually are by rounding the price down to the next lowest price, instead of rounding upwards (Sehity, Hoelzl & Kirchler, 2005). For example, a product advertised as £9.99 may be perceived it to be £9.00 instead of £10.00, despite the price being factually closer to £10.

 Aside from this, the left digit of a price (the number of pounds) may act as an anchor in our evaluation of what the price is, the digit on the right-hand side (the number of pence) may therefore go unnoticed in our overall perception of the price, as it seems insignificant (Thomas & Morwitz, 2005). Some retailers exploit this concept by tactfully printing the number of pence in a much smaller print size to make consumers pay less attention to it. This technique encourages many customers to pay up to £1 more than they initially realise. Whilst this is inherently profitable for retailers, as consumers it’s important to remember that pennies do make pounds!

The not so loyal loyalty cards

Recently, I stopped by a random coffee shop with the intention of simply buying 1 drink and leaving and most likely not becoming a regular customer. However, after being handed a simple loyalty card with a nice neat stamp over the 1st coffee cup picture after my purchase, I found myself revisiting that same store 6 more times… till the 6 spaces on my loyalty card were all stamped up and I could claim my 7th cup free.

Loyalty programmes are commonly used by retailers to gain regular custom, in many cases it becomes habitual for an individual to go the same company they have signed up to a reward plan with when they need a product/service as they will receive some benefit from it in the long run. In my case, I felt an odd sense of obligation to try to make sure I filled up my loyalty card with 6 stamps to get my 7th cup free. Instead of going elsewhere when I needed coffee, it became the norm for me to visit this shop as I had committed to their loyalty scheme. This behaviour may be explained by the commitment and consistency principle outlined by Cialdini (2007). By signing up to a loyalty scheme, I demonstrated a sense of commitment to the coffee shop, in order to be consistent with my initial sign up I felt inclined to buy my coffee from that specific store to show my ‘loyalty’.

Also, I found by the time I had 3 stamps, I was even more motivated to try to get the remaining stamps. This can be explained by the goal gradient hypothesis (Hull, 1932) which suggests the closer we get to a reward, the more effort we are willing to expend to reach it. In a field study observing how frequently customers purchased coffee depending on where they were in the loyalty programme, showed as customers got closer to earning their free coffee, they began purchasing coffee more frequently (Kivetz, Urminsky & Zheng, 2006). However, if you find the cashier stamps your card twice, that’s when they’ve really got you! By adding an extra stamp to get you close to your goal, retailers can provide customers with an illusion of progress which has been shown to accelerate the speed at which you try to complete the loyalty programme. A experiment found customers who received a 12-stamp coffee loyalty card with 2 pre-existing stamps purchased the remaining 10 drinks much faster than those who received a normal 10-stamp card (Kivetz, Urminsky & Zheng, 2006). In both cases, customers needed to buy 10 drinks for their free coffee but the illusion of progress with a 12-stamp card with 2 pre-given stamps makes customers feel more driven to reach their goal as they perceive themselves as being that extra bit closer to their target.

Who’d have thought a simple stamp could be so persuasive?

References

Cialdini, R. B., & Cialdini, R. B. (2007). Influence: The psychology of persuasion. New York: Collins.

El Sehity, T., Hoelzl, E., & Kirchler, E. (2005). Price developments after a nominal shock: Benford's Law and psychological pricing after the euro introduction. International Journal of Research in Marketing, 22, 471-480.

Hull, C. L. (1932). The goal-gradient hypothesis and maze learning. Psychological Review, 39, 25.

Kivetz, R., Urminsky, O., & Zheng, Y. (2006). The goal-gradient hypothesis resurrected: Purchase acceleration, illusionary goal progress, and customer retention. Journal of Marketing Research, 43, 39-58.

Thomas, M., & Morwitz, V. (2005). Pennywise and pound foolish: the left-digit effect in price cognition. Journal of Consumer Research, 32, 54-64.