Persuasive Advertising - J. Scott Armstrong [34]
One reason for using a reference price is that people often have little knowledge about the typical price of a given product. Observers in supermarket aisles watched as customers selected products. Immediately after a customer placed an item in a shopping cart, an observer asked the customer, “Off the top of your head, without checking, what is the price of the [product name] you just chose?” Approximately 21 percent did not even offer an estimate. Of those offering an estimate, 44 percent were unable to come within 5 percent of the price. Half of the customers who purchased a sale item were unaware that the price had been reduced (Dickson and Sawyer 1990).
When making price comparisons, it might help to present the price from a different perspective. In doing so, look for analogies to inform consumers that the product is reasonably priced. Consider this Kellogg’s advertisement from many years ago: “For less than the cost of a postage stamp, you can address a bowl of Kellogg’s Corn Flakes.”
Another way to frame the price is to change the time context, such as in the “Pennies a day” (PAD) approach. In 1901, the Chicago Telephone Company advertised telephone service for 16 cents a day. Bernbach’s Burning Egg ad for GTE said: “Why not get an extension phone in your kitchen? It costs less than an egg a day.” PAD framing will encourage purchase if the price appears to be low.
If you were trying to discourage behavior, the recommendation would be reversed. Thus, to discourage smoking, it would be better to state an aggregate cost, such as $1,825 per year, rather than $5 per day.
Several U.S. states (including California, Colorado, New York, and Maryland) require truthful price comparisons. Compeau, Grewal, and Grewal (2001) suggested that to avoid lawsuits, ad campaigns should offer the “regular price” at least half of the time and make at least 25 percent of their transactions at this level.
References prices are widely used. For example, on the U.S. Labor Day weekend in 2001, an assessment of ads by six national retailers revealed that 72 percent contained reference prices (Chandrashekaran and Grewal 2003).
Evidence on the effects of reference prices
Control-group subjects were shown a newspaper ad that featured an RCA TV set at a sale price of $319. Experimental group subjects saw ads that mentioned that the $319 price was a reduction from one of three reference prices: $359, $419, or $799. Compared with having no reference price, ads with a plausible reference price raised the perceived value of the offer. While the subjects rated the exaggerated reference price, $799, as less believable than the plausible reference price, they still rated the offer’s value higher than for an ad with no reference price (Urbany, Bearden, and Weilbaker 1988).
A lab experiment was used to test the effect of highly exaggerated claims about price savings. Subjects saw ads for 35mm cameras with widely varying price reduction claims. The exaggerated claims had little effect on the perceived value of the offer (Compeau, Grewal, and Chandrashekaran 2002).
Different versions of ads for bedspreads and ladies housecoats were mailed to 968 female heads of households. Some ads had no reference price and listed prices simply as ‘Special—$11.98,’ while the others included reference prices (e.g., ‘regular price $15.98, sale price $11.98’). The ads with reference prices were seen as more believable, their products were judged to be a better value, and the intentions to purchase were 6.5 percent higher (Barnes 1975).
In a hypothetical situation, 120 subjects were asked to donate to a charity through payroll deductions. Half were asked to donate $0.85 per day and 52 percent of them donated. The other half were asked to donate $300 for the year and only 30 percent donated. And indeed, magazines have used PAD to sell subscriptions. Industry studies showed that per-issue price framing yielded about