Persuasive Advertising - J. Scott Armstrong [36]
Partitioned pricing can help to justify high prices by showing pricing components such as shipping, and allowing sellers to offer attractive pricing on these components. In addition, focusing on the product’s base price can make the price seem lower.
Evidence on effects of partitioned prices
Three experiments involved sales of a CD Walkman, digital watch, and laptop computer. Purchase intentions were much higher when, instead of a single price, there was a surcharge that was small compared with the base price of the product (Sheng, Bao, and Pan 2007).
On the negative side, in a lab experiment in which 141 subjects viewed computer and stereo advertisements, customers had poorer short-term recall of partitioned prices than of all-inclusive prices. Moreover, when they incorrectly recalled prices, they were annoyed, often assigned blame to the advertiser, and lowered their opinions of the brands and retailers (Lee and Han 2002).
The conditions for this principle relied partly on lab experiments (Morwitz, Greenleaf, and Johnson 1998; Kim 2006).
One year ago, Mr. A paid $40 for a ticket to a football game to be played this weekend. On Friday, Mr. B paid $40 for a ticket to the same game. The men have anticipated this game with equal enthusiasm. On the day of the game, there is a snowstorm. Who is more likely to brave the snow and attend the game, Mr. A, who paid for his ticket long ago, or Mr. B, who recently incurred the $40 expense?
1.4.6. To retain customers, consider linking payments to consumption
When customers are more aware of how much they have paid for products or services, they tend to use them more often, and also tend to become repeat purchasers.
When subjects were asked the above football game/snowstorm question, they expected that Mr. B would be more likely to attend the game because, given his more recent purchase, the cost looms larger in his mind (Thaler 1980).
To make people more aware of how much they are spending, an ad might ask them to pay by cash rather than credit cards. As an incentive to do this, it could offer discounts for cash payments. And because people consume more services closer to the time when they pay for them, the ads might run during periods when demand is low.
Evidence on linking payments to consumption
In a lab experiment, 80 subjects were asked to imagine that they had pre-purchased four days’ worth of lift tickets at a Colorado ski resort. One group was told that they had purchased a $160 four-day (bundled) pass; the second group had purchased four one-day ski tickets at $40 each (unbundled). After three excellent days of skiing, it rained the night before the last day and conditions were poor. The subjects were told “You look at your [ski pass/remaining ticket] and are not sure if you want to go skiing or leave early.” They responded on a scale from 1 (= “definitely will not go skiing”) to 10 (= “definitely will go skiing”). Those with the unbundled tickets were much more likely (5.2 vs. 3.6) to say that they would go skiing. Further support for the effects of bundling was provided by another lab experiment that extended this ski study, yet another extension that used a vignette about going to three plays, and an analysis conducted using non-experimental data on attendance at a Summer Shakespeare Festival (Soman and Gourville 2001).
Debit cards do not offer frequent-flyer points, and they remove money immediately from your account when purchases are made, rather than at the end of the month as with credit cards (thus, you lose out on having an interest-free loan). So why is it that in Europe, in 2006, consumers spent more than three times as much on Visa debit cards as on Visa credit cards?
1.4.7. Consider separating payments from benefits—if the payments are completed before the benefits