Ease Comparisons of Your Price

How do customers evaluate prices?

They use reference prices (see Mazumdar et al., 2005).

Imagine a carton of eggs for $5.00.

Is $5.00 a good deal? How can you tell? What happens in your brain?

You compare $5.00 to a variety of numbers:

• Past Prices. You paid $4.50 last time.
• Advertised Prices. A flyer said $3.49.
• Estimated Prices. You expected $4.00.
• Competitor Prices. Other eggs are $2.99.
• Ideal Price. You'd like to pay $3.50.
• Maximum Price: You won't pay more than $5.50.
• Nearby Numbers. You read 100% Organic.

And other numbers (see Lowengart, 2002)

You merge those sizes into a single magnitude, say $4.00, then compare this magnitude to the base price of $5.00.

Hmm, in this case, you'd need to pay more.

But that's okay. If this difference still feels reasonable, you'll buy the eggs and feel a slight twinge of pain that reduces your spending in the remaining shopping trip.

How to Apply

• Compare Yearly Prices When You're Cheaper. Customers are biased toward absolute numbers: The relative difference between 5 and 9 feels smaller than 500 and 900 (Pandelaere et al., 2011). Therefore, don't compare your $5/month plan to a $9/month alternative. Compare the yearly differences at $60/year and $108/year. The absolute difference is now $48 instead $4.
• Compare All Your Prices to Competitors, or No Prices. Selective comparisons feel suspicious. Any price without a comparison is assumed to be higher (Barone et al., 2004).
• Name Competitors in Comparisons. "Seen Elsewhere for $50" feels suspicious (Krishnan et al., 2006).
• Bundle When Competitors Are Cheaper. Prevent direct comparisons with a cheaper competitor (Balachander et al., 2010).
• Place Your Price Underneath Competitors. You'll benefit either way: You'll ease subtraction when cheaper, yet hinder subtraction when more expensive (Guha et al., 2018).

• Balachander, S., Ghosh, B., & Stock, A. (2010). Why bundle discounts can be a profitable alternative to competing on price promotions. Marketing Science, 29(4), 624-638.
• Barone, M. J., Manning, K. C., & Miniard, P. W. (2004). Consumer response to retailers’ use of partially comparative pricing. Journal of Marketing, 68(3), 37-47.
• Briesch, R. A., Krishnamurthi, L., Mazumdar, T., & Raj, S. P. (1997). A comparative analysis of reference price models. Journal of Consumer Research, 24(2), 202-214.
• Grewal, D., Marmorstein, H., & Sharma, A. (1996). Communicating price information through semantic cues: the moderating effects of situation and discount size. Journal of Consumer research, 23(2), 148-155.
• Grewal, D., Roggeveen, A. L., & Lindsey-Mullikin, J. (2014). The contingent effects of semantic price cues. Journal of Retailing, 90(2), 198-205.
• Krishnan, B. C., Biswas, A., & Netemeyer, R. G. (2006). Semantic cues in reference price advertisements: The moderating role of cue concreteness. Journal of Retailing, 82(2), 95-104.
• Lowengart, O. (2002). Reference price conceptualisations: An integrative framework of analysis. Journal of Marketing Management, 18(1-2), 145-171.
• Mazumdar, T., Raj, S. P., & Sinha, I. (2005). Reference price research: Review and propositions. Journal of marketing, 69(4), 84-102.
• Pandelaere, M., Briers, B., & Lembregts, C. (2011). How to make a 29% increase look bigger: The unit effect in option comparisons. Journal of Consumer Research, 38(2), 308-322.