Persuasive Advertising - J. Scott Armstrong [40]
Customer perceptions of quality often differ from reality. Three studies looked at the correlations of price and quality as rated by Consumer Reports or Consumer Research Magazine. The relationship between price and quality was modest. In some cases, such as laundry detergents, orange drinks, and frozen French fries, they were negatively related (Ordóñez 1998). Similar findings were obtained in a meta-analysis of 23 studies (Völckner and Hofmann 2007).
Responses from 149 members of the Purchasing Management Association found that the “high-price-means-high-quality” belief persists even when there is little relationship between price and quality (Rao and Bergen 1992).
1.4.12. For inexpensive products, state price discounts as percentage saved; for expensive products, state price discounts as money saved—or present both
The safe approach to this principle is to state price discounts in both cash and percentage terms. Customers appreciate detailed information about prices.
Evidence on the effects of stating money savings versus percentage savings
Early researchers asked questions such as: “You are planning to purchase a book for $50. Then you learn that the same book is available at another store for $25. You would need an hour to get to the other store and back. Would you go to the other store?” Other subjects were asked: “You are purchasing a tennis racket, and you have found a model that you like for $350. Then you learn that the exact same racket is available in another store for $325. You would need another hour to get to the other store and back. Would you go to the other store?”
In each case, you can save $25 by spending an hour. But fewer people said they would go to the other store in the second situation, presumably because some of them tend to perceive savings in percentage terms instead of dollar terms.
Tversky and Kahneman (1981) concluded that “consumers hardly exert more effort to save $15 on a $150 purchase than to save $5 on a $50 purchase.” Reviews added support (Krishna et al. 2002; Nunes and Park 2003). However, some experiments found that customers were also interested in the amount of money saved, regardless of the percentage. Contrary to conclusions from earlier research, many customers did in fact act rationally. A “percentage off” sale caught their attention, but for expensive items, customers also considered whether the added effort was worthwhile (Darke and Freedman 1993; Darke, Freedman, and Chaiken 1995).
A review of research and a lab experiment concluded that price discounts should be stated as the amount saved for high-priced goods, and as “percentage off” for low-priced goods (Gendall et al. 2006).
People appreciate detailed information about prices. This finding was supported in lab experiments that presented ads for electronic calculators to 800 undergraduate subjects. Some subjects received only the sale price while others, randomly assigned, received various combinations of sale price, regular price, dollars off, and percentage off. Purchase intentions were highest for ads that contained all four pieces of information (Della Bitta, Monroe, and McGinnis 1981).
You are introducing a new brand of mouthwash in a discount store. Would you advertise it at a low introductory price or sell it at its list price?
1.4.13. Minimize price information for new products
In general, new-product advertisements should try to get customers interested in the product