Persuasive Advertising - J. Scott Armstrong [31]
Approach the problem from the perspective of customers. What is the easiest way for them to understand—and remember—prices?
One way to judge the ease of remembering a price is to count the number of syllables. For example, 747 is “sev-en-hun-dred-for-ty-sev-en”—eight syllables. Rounded prices are easier to remember (e.g., sev-en-fif-ty). In addition, the manner of pronunciation could help in ads with sound. Thus, $2,420 can be cut from eight to five syllables by saying “24-20,” or four syllables with “2-4-2-0.”
In the interest of generating good and lasting customer relationships, an ad should describe all relevant costs to customers. This is the fair way to advertise and will likely improve customer satisfaction with the purchase. The U.S. Fair Packaging and Labeling Act stated that “packages and their labels … should facilitate value comparisons.” The American Marketing Association’s Code of Ethics includes a similar statement of conduct.
A consumer’s cost of using a product might include the initial purchase price as well as the costs of learning about, installing, and maintaining the product.
Rational customers like to compare prices. Websites can help them by providing an organized list of product features and prices. Bestbuy.com is one of the many websites that facilitate price comparisons among different brands of a given product. For example, a consumer who is interested in buying a digital camera could list the brands by prices. In 1996, Progressive Auto Insurance, recognizing that some people will want to see comparative prices before making a decision, offered to provide competitors’ price quotes. Progressive usually has the lowest rate, but not always. By openly providing this useful information, customers have developed trust in Progressive.
Given their expectations that they will save money by purchasing larger sizes, “quantity surcharges” (where the large size costs more per ounce than the small size) may lead customers to think that the seller is trying to trick them. So how often do people pay more per ounce for larger sizes of the same product? Widrick (1979) found that such “quantity surcharges” occurred for about 18 percent of the 2,117 brands in his survey of 70 grocery stores in Monroe County, New York. He also found that the percentage varied substantially by store chain; Supersaver had the highest percentage of quantity surcharges (28 percent) while IGA had the fewest (8 percent). The variation across brands was large: Starkist, SSC International, and van Camp had quantity surcharges on more than 85 percent of their items; General Mills and Kellogg’s had less than 5 percent; and General Foods, Uncle Ben’s, and Purex had no surcharges.
In summary, ads should present prices in ways that are easy for customers to understand. Customers faced with making many decisions are often confused about prices. This is especially relevant for point-of-purchase and Internet ads. Customers with less education are especially likely to be confused. Price clarity might improve long-term relationships.
Evidence on the effects of meaningful information on prices
Does it help the advertiser to provide information about competitors’ prices? An experiment mirrored the Progressive strategy for an online book retailer by showing book prices of six competitors. When the competitors’ prices were displayed, the subjects rated the seller as more trustworthy and they selected more of its products. The strategy was especially useful when the price comparisons were mixed: that is, when prices were lower on some items and higher on others (Trifts and Haubl 2003).
Simple prices are more memorable. A study using candy, DVDs, and digital cameras, found that each extra syllable in the pronunciation of a price decreased the chances of properly recalling prices by 20 percent (Vanhuele, Laurent, and Drèze 2006).
I expected that quantity surcharges would be indicative of a company’s failing to think of transactions from the buyers’ viewpoint. As a simple test on the long-term effects of quantity surcharges, I