IDEX Online Research: What’s The Right Price?
April 10, 08
How should retail jewelers price their goods? We’re not talking about margins, nor are we going to debate the merits of showing the price versus keeping the price tag hidden.
What we’re talking about is the numbers which make up the price.
Recently, the Wall Street Journal ran an article about how to price goods that you want to sell. Most American consumers (and perhaps some jewelers) really don’t understand the psychology related to retail prices.
American shoppers are continually buying things, but most shoppers have no idea how to sell things.
In its article, the Wall Street Journal asks the question: “Want to improve your odds of finding a buyer?” It urges people (and merchants) to “consider these four pricing tricks.”
- Looking Slim – While $1.99 is barely less than $2.00, consumers perceive that there is a huge difference. Manoj Thomas, a marketing professor at Cornell University, says people read from left to right. When consumers look at prices, they make judgments in a fraction of a second. They anchor that judgment on the first thing they see. Thus, $1 (.99) is half of $2 (.00), based on the way shoppers perceive prices.
What about a price of $8,222 versus $8,111? One study of price comparisons found that if the left hand digits are the same, buyers will focus on the right-hand numbers. So, again, $8(111) appears to be far less than $8(222), when the leading number is the same ($8).
Finally, buyers perceive the discount to be larger if the right-hand numbers are declining from two to one, rather than from nine to eight. Even though the decline is the same in unit terms, people think they are getting a better deal, says a marketing professor at the University of Connecticut.
- List High, But Not Too High – While we believe that jewelers should not engage in price haggling – it puts them in the same group with used car dealers – there is a way to set a price, if you still want to send the signal to consumers that it is OK to negotiate.
As a merchant, you should set your list price higher than you are willing to accept. If you ask a high price, people tend to use that as information in setting their reference price. But there is also evidence that, if you set a price that is implausibly high, it will scare off shoppers.
Jewelers who insist on running never-ending “50 percent off sales” are probably listing their initial prices too high. When shoppers perceive they are being forced into playing pricing roulette, they usually move on to another merchant.
- Sending the Value Message – Supposed you think a piece of jewelry should sell for around $5,000. If you price it at a round number, say $4,950, it will convey a message of quality. If you price the merchandise at $4,923, it will convey the message that this piece is a bargain. Why? Consumers associate precise numbers with value-priced goods. A precise number may also signal that you have given much thought to the price, and you aren’t willing to negotiate.
A marketing professor at New York University says that if you want to give the message of prestige, you should price things in round numbers – perhaps $5,000 – perhaps similar to Tiffany. If, however, you want to make a quick sale, you need to create the perception that you are offering a bargain by asking a price comprised of precise numbers.
- How Much to Discount – If you plan to drop your asking price, how should you do it? If a piece of jewelry is listed for $5,995, it is better to drop the price to $5,695 or $5,495, rather than offering a percentage discount. Consumers can’t mentally calculate percentage discounts easily in their heads. Further, you want to change as few numbers as possible, because you want shoppers to be able to make the discount computation as easy as possible. If you use digits that make the price comparisons difficult to calculate in shoppers’ heads, the perception is that the discount is small.