Persuasive Advertising - J. Scott Armstrong [41]
First impressions are important. If you would like customers to view your product as one having high quality, introduce it with a high price. Avoid using a low introductory price or a promotional offer.
Bose used this principle in its ad for a new home theater sound system. It focused on benefits and offered a free trial. Customers had to contact Bose to learn about prices. We know that Bose tracks the effectiveness of each ad; this one must have worked because the ad ran frequently.
Evidence on the effects of price and promotional information for new products
The first study relates to the problem posed in the lead-in to this section:
Low introductory prices harmed long-term sales for low-involvement products. In a field experiment, 12 matched pairs of discount stores were randomly assigned to sell a new brand of mouthwash (a store brand) either at the regular listed price ($0.39 per quart bottle) or at a sale price ($0.25 per quart) for a nine-day period. The low price sold more units during the introduction; however, because of the lower price, total revenues were lower. But from weeks 2 through 5, when all stores charged the regular price, sales in the stores that had offered the reduced introductory price were substantially lower. This persisted in a follow-up at week 20. Similar results were obtained when the researchers repeated the experiments with toothpaste, aluminum foil, light bulbs, and cookies. Based on “cognitive dissonance,” when people take an action for no extrinsic reward, they try to justify this action to themselves. Thus, when the new brand of this credence product was introduced at a low price, customers concluded that they were buying it to save money. When the sale ended, the reason to purchase also ended. Customers who had made their original purchases at stores with the regular price purchased the mouthwash because of its quality, and thus were more likely to continue to purchase it (Doob et al. 1969).
In three lab experiments, 427 subjects were asked to evaluate brands of experience goods—a dentist, health club, and mutual fund. Some subjects had received information about short-term price discounts. When a brand had not previously been promoted and subjects had little product knowledge, the subjects rated the quality of the brand lower when a price discount had been used (Raghubir and Corfman 1999).
In a commercial field experiment involving a direct-mail offer for credit cards, half the people received an offer describing benefits but stressing a promotional offer (5,000 frequent-flyer bonus miles), whereas the others were simply told about the benefits of the card. The frequent flyer promotion brought in 34 percent more new cardholders, but one year later, those recruited without the promotional offer generated 2.5 times more revenue (described by Rossiter and Bellman 2005, p. 356, based on an unpublished—and unavailable—report).
Which offer would generate the highest sales, assuming that prices are the same: a) a wristwatch, or b) the same wristwatch that also shows time on both the East Coast and West Coast of the United States?
1.4.14. Consider bundling prices of features or complementary products or services if they are desirable to nearly all customers
When charged a single price for bundled products, people think less about the price of each product. This can enhance the transaction because the bad news (price) is handled using a single number. This is likely to make potential purchasers less sensitive to price.
In some cases bundling of non-complementary products might increase the probability of purchase, but it might also confuse customers. For example, an ad trying to persuade people to switch telephone long-distance carriers offered a pint of Ben & Jerry’s ice cream every month for a whole year. This bundling of an unrelated promotional item makes comparisons difficult.
In the 1970s, the U.S. National Football League (NFL) found it hard to motivate