Persuasive Advertising - J. Scott Armstrong [33]
In contrast, a field experiment used four matched pairs of German drugstores. It found a 6.8 percent increase in unit sales and a 4.8 percent increase in sales volume for detergents and health care products when the stores used even prices for all brands in these product categories over a four-week period (Diller and Brielmaier 1995).
Now consider the effects on quality perceptions. Pricing data from 15 stores revealed that the prestigious stores were more likely to use round prices (Stiving 2000). For example, Neiman-Marcus used round prices on 84 percent of its items while Kmart used them on 1 percent. Another study showed that round pricing is associated with better quality perceptions for restaurants and other high-end products. Fine-dining establishments are much more likely to use round prices than are fast-food restaurants (Naipaul and Parsa 2001).
Odd prices are difficult to remember. In a lab experiment using 20 products, 145 subjects were presented with either odd prices (.99 or .98 endings that reduced the left-most digit) or even prices. Two days later, the subjects had more difficulty remembering the odd prices. Furthermore, they underestimated the odd prices (Schindler and Wiman 1989).
In a lab experiment, subjects were given a list of 20 items, 8 of which used either round prices or .99 prices, and asked them “How many [of these] items could you purchase for $73?” Subjects receiving 00-ending prices thought they could purchase 17.5 of the items, whereas those with 99-ending thought they could purchase 18.3 items—an estimation error of about 5 percent (Bizer and Schindler 2005). In another experiment, 46 university students were given bundles of either odd prices or even prices, and were asked to quickly add the prices in their heads. On average, the students valued the odd-priced sets at 25 percent below the even-priced sets (Lambert 1975). Members of the general public are likely to be even more misled than college students.
Odd prices waste time for customers. Lab experiments found that odd prices take one-third more time to understand (Estelami 2003). Diller and Brielmaier’s (1995) field study in Germany found that the purchase decision time for health care products and detergents took 23 percent longer for odd than for even prices (49.5 versus 40.1 seconds). Given the number of products that customers consider when making purchases, the annual time lost because of odd prices is substantial. I have tried several admittedly rough calculations and have concluded that the complete elimination of odd pricing would save a good part of a day per adult shopper per year. Feel free to make your own estimate.
In their study of shoppers at German drug stores, Diller and Brielmaier (1995) found that 66 percent of their respondents favored round prices, while only 13 percent preferred odd prices. Moreover, 76 percent of them thought even prices were more honest.
1.4.3. Show the price to be good value against a reference price
In arguing about funding cuts for the National Endowment for the Arts in 1995, proponents said the cuts would save $168 million per year, while those opposing the cuts said that the savings amounted to only 64 cents a day per citizen.
Reference prices can have a substantial effect on customers’ perceived value of a product. Chesebrough-Ponds priced its petroleum jelly 14 times higher per ounce when packaged and sold as Vaseline Lip Therapy because its competitor, Chapstick, was selling for a similar price (Nagle and Holden 2002).
Reference prices are used to show that a price is favorable. Reference prices could be stated in many ways, such as: “Original price …,” “Regularly priced at …,” “Compare elsewhere at …,” “Manufacturer’s suggested list price …,” and “Was ….”
Make comparisons that are relevant to the decision. For example, when an ad is sent to customers’ homes, it should show comparison prices at other stores to help customers decide where to shop.