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Discount less and sell more expensive products, Peter Smith writes.
Peter Smith is an industry consultant, speaker, sales trainer, and author. He can be reached via email at TheRetailSmiths@gmail.com.
Dan Ariely, the author of “Predictably Irrational,” one of the seminal books on psychology, wrote, “If we see a discounted item, we will instinctively assume its quality is less than that of a full-price item—and then, in fact, we will make it so.”
The psychology of pricing is no easy matter.
In many respects, we see what we want to see, and, absent the safety of company prohibitions, our actions are often the result of personal biases, effected with little consideration for the overall health of the business or the longer-term benefits to customers; pricing becomes nothing more than a baseline for discussion, even as that discussion is often a catalyst for customer anxiety.
Price ambiguity can, at its worst, be a descent into the abyss of unprofitability.
Accepting the profound impact that pricing has on profitability, and, consequently, the health of a business, one would expect a good deal more discussion on the subject, as a moral issue, as a practical matter, and from the perspective of consumer psychology.
With the amazing run we are seeing with jewelry and timepiece sales these past couple of years, it would be easy to ignore the impact of discounting and pricing decisions in general. However, there are signs now emerging that should signal a note of caution for the near future.
The biggest of those signs is a flattening of unit sales with independent retail jewelry stores.
Related stories will be right here …
The psychology of pricing is no easy matter.
In many respects, we see what we want to see, and, absent the safety of company prohibitions, our actions are often the result of personal biases, effected with little consideration for the overall health of the business or the longer-term benefits to customers; pricing becomes nothing more than a baseline for discussion, even as that discussion is often a catalyst for customer anxiety.
Price ambiguity can, at its worst, be a descent into the abyss of unprofitability.
Accepting the profound impact that pricing has on profitability, and, consequently, the health of a business, one would expect a good deal more discussion on the subject, as a moral issue, as a practical matter, and from the perspective of consumer psychology.
With the amazing run we are seeing with jewelry and timepiece sales these past couple of years, it would be easy to ignore the impact of discounting and pricing decisions in general. However, there are signs now emerging that should signal a note of caution for the near future.
The biggest of those signs is a flattening of unit sales with independent retail jewelry stores.
March’s decline of 1 percent and April’s decline of 2 percent might not yet trigger fire alarms, but they are import indicators as unit sales have long served as a proxy for foot traffic. Put simply, foot traffic has likely begun to recede from the heady days of late 2020 and 2021.
If you plan on growing your business in an environment with fewer people coming through your door, and fewer units of sales, you must explore strategies to increase your average ticket.
There are effectively two ways to do that.
The first is to stop discounting, or at least discount less, and the second is to sell more expensive products.
In a prominent case on price perception, researchers from Stanford and California’s Institute of Technology tested wines on students while measuring their brains on fMRI technology.
Without telling the students, the researchers presented the same wine twice. Once, telling the students that the wine was a reasonably priced variety. The second time, telling the students that the wine was a very expensive type.
The reaction of the students was to point to the most expensive wine (again, the exact same wine they had tasted earlier believing it to be a lower price) as the most enjoyable.
However, rather than arriving at their assessment of the “expensive wine” because they believed they ought to prefer the expensive wine (who among us wants to admit we can’t tell the difference between ordinary and extraordinary wine?), what the researchers discovered was something they had not expected.
“If you plan on growing your business in an environment with fewer people coming through your door, and fewer units of sales, you must explore strategies to increase your average ticket.”
When the expensive wine was presented and the students were told it was the expensive wine, there was a flurry of activity in their medial orbitofrontal cortices not witnessed when they believed they were drinking the lesser priced wine. That’s the area of the brain where we perceive pleasantness.
In short, telling the students that it was a higher-priced product actually changed their neurology and improved their enjoyment of the wine.
Roger Dooley wrote in his book “Brainfluence: 100 Ways to Persuade and Convince Consumers With Neuromarketing” that, “What the research shows is that what customers believe about a product can turn into reality; if they believe a product is better, it will be better.”
This is probably as good a time as any to remind ourselves that we can’t make a silk purse from a sow’s ear. I’ve never seen any research to support the idea that taking a poorly constructed piece of jewelry and marking it up to pretend it is something else is ever a good long-term strategy.
What customers want more than anything else is to come away from their shopping experience feeling good about what they purchased. They don’t want to harbor regrets about whether they bought the right thing or not and, provided the quality is good and as stated, they actually feel better when they pay more for a product. They assume that the premium priced product is a better quality.
You may believe your customers want the lowest price. Your salespeople may be primed to negotiate and make a deal with every diamond conversation. You may even believe that you are doing your customer a favor by discounting your products or by under-selling the customer.
But you would be far better articulating the real value proposition of your products. Understand what customers really want and inspire them to reach and extend themselves to acquire the best products they can. That, ultimately, is the best deliverable.
You might even include a nice bottle of wine.
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