[Pricing Nugget #032] Discounts Need a Magic Touch

Imagine you are a pricing manager in an online store. You sell something your customers need to feel and touch to get a sense of the quality, for example, apparel or furniture.

You plan a promotion. Let us assume you are selling leather gloves, and you give a serious 60% discount.

You look at the campaign, see the sales numbers getting in, and you are…

… a bit disappointed.

You are selling leather gloves, and you give a discount on them.

What has happened?

Looking back to Pricing Nugget #010, we learned about price-quality inference. Price-quality inference means that if the price is high, the quality is always perceived as better, and if the quality is perceived as better, the purchase intent is also higher.

So price and quality are positively related. They behave in the same direction—the same accounts for the perceived quality and the customer's purchase intent.

Okay, what now?

You give a discount on the price, so the price goes down—consequently, the perceived quality and the purchase intent drop. Not so good – that is exactly the opposite of what you intended with your promotion.

Researchers ran an experiment on leather gloves (what a surprise ).

If the leather gloves were sold at a regular price of $19.95, the purchase intention was rated as 4.55. But, if the price is discounted from $49.95 to $19.95, the purchase intention decreases to 3.94.

The selling price is $19.95 in both cases – but the latter is framed as a promotion.

Customers are less likely to buy at the promotion prices. What could you have done otherwise?

The researchers reasoned: If a price – framed as a promoted price – raises doubts about the quality of the product and, therefore, lowers customers' purchase intention, what could we do to avoid this doubt about quality?

If you have a product of which you can evaluate the quality by touching and feeling, let us include product touch information.

So they included this product touch information with: "Touch and feel: The leather gloves are soft and form-fitting."

This little piece of information raises the purchase intention of a price framed as a regular price to a price framed as a discounted price from 4.012 to 4.087.

In this case, product touch information helped to turn a promotional campaign from disastrous to successful.

Of course, product touch information is not a silver bullet.

To turn any promotional campaign into a success, you need four conditions:

First, price-quality inference needs to be at play,

Second, touching and feeling help evaluate the quality and increase quality perception.

Third, you sell via a sales channel where this information is likely unavailable – for example, in an online versus offline store. It makes sense to provide this information online because, in offline channels, customers might be able to gather this information by touching and feeling themselves.

Fourth, these effects are only found for customers who are not sale prone. Sale-prone customers would buy in any case. Product touch information has no incremental impact on their purchase intention. But for customers who are not sale prone – maybe these customers are the more interesting ones –  product touch information helps raise their purchase intention for promotions.

What did we learn?

Today we learned how product touch information could convince not sale-prone customers to buy a product during the promotion.