Persuasive Advertising - J. Scott Armstrong [35]
1.4.4. If quality is not a key selling point, consider advertising price reductions
Advertisers often advertise price reductions in efforts to increase sales volume. This makes sense when the competing products are thought to be of equal quality. However, when quality is a key selling point, reduced prices pose problems. They send a message of good value for the immediate transaction, but they lower the perception of quality in the long term, especially for products where quality is hard to judge or where people are unfamiliar with the product. In effect, short-term gains are likely to be achieved but with long-term losses.
To avoid the lower-price–lower-quality perception, provide a good reason for the price discount. For example, it is easy to justify reduced prices for goods nearing an expiration date. Another approach is to offer a free gift with a certain volume of purchases rather than to reduce prices.
Consider whether competitors are likely to respond in kind if your firm lowers its price. For example, they are more likely to respond if your brand has a substantial market share and if you do not have substantially lower costs.
Customers are often trusting when they see the word “sale.” Because of this trust, low-involvement purchases will increase when a sale is advertised, even if the price reduction is trivial. A simulated store experiment on toothpaste, peanut butter, and toilet paper found that customer purchases increased even when the “sale” involved no price reduction. The paper quoted Jeff Thomas, an executive at H-E-B supermarket: “Occasionally we attach signs marked ‘Everyday Low Price’ in front of two randomly selected brands in our store, leaving their prices unchanged. Even though customers should be accustomed to these signs … sales typically doubled” (Inman, McAlister, and Hoyer 1990).
It is deceptive to advertise a product as being on sale when it is not. Such a practice could cause customers to lose trust in a brand. In the United States, it is also illegal to advertise negligible price decreases.
Shoppers value bargains for reasons other than financial savings. Bargains can enhance the purchasing experience by helping to convince buyers that that they are good shoppers and that they received a fair price. Also, customers could become dissatisfied if they compare prices and learn that others received a better deal.
Evidence on effects of advertising prices when product quality is unimportant
The above discussion on conditions drew heavily on a review of empirical evidence from 16 studies (Darke and Chung 2005).
Customers discount advertised claims about price reductions. In one study, when shown ads for four durable products, subjects thought that the savings were overstated by about 25 percent (Blair and Landon 1981).
Should you state a price as “$30” or as “$25 plus a $5 service fee”?
1.4.5. Consider partitioned prices when the add-on prices seem fair and are small relative to the base price
Partitioned prices are more persuasive when the add-ons seem fair and do not attract attention. This principle is applicable when the add-ons are (1) traditional and consistent with customers’ expectations (e.g., shipping costs), or (2) based on costs that the seller cannot anticipate (e.g., a temporary tax by the government). When these conditions hold, partitioned prices can be persuasive. However, when they deviate from the conditions, partitioned prices could displease customers.
When using partitioned prices, advertisers should display the price information clearly and include the total price. However, they should not highlight the add-on prices (Kim 2006).
Xia and Monroe (2004) summarize the evidence: “When used appropriately, price partitioning enhances [customer] satisfaction with the price, perceived value, willingness to buy, and store trustworthiness.” The key factor is whether customers view the surcharges as fair.
Avoid partitioned prices if they tend to mislead. In early 2006, Air