[Pricing Nugget #044] When Customers “Experience” Quantity Units

Imagine you're selling products that you can sell as multi-packs. How should you frame the content and the quantity of your products?

For example, you can frame them as "four bags of potato chips" or as "160 grams of potato chips."

What should you do? We will find out today.

You are selling 14 bags of potato chips with 1oz each. How should you describe these chips and the quantity? 

Either as "Lay's chips 14 snack bags" or as "Lay's chips 14oz"?

Researchers ran various experiments and only changed the first line of this description Lay's chips 14 snack bags versus Lay's chips 14oz.

The remaining description was the same “Lay's classic chips, 14oz of chips in snack bags of 1oz each.” Only the first line was different.

And the difference in the first line refers to the units and the way you present them. You can either present them as a perceptual unit or as a standardized unit. Perceptual units are snack bags, for example. Standardized units are the quantitative units that you usually refer to, like kilograms, ounces, milliliters, and so on.

What is the impact on consumer perception here?

If you present a perceptual unit and make it more salient, it triggers experiential processing.

Customers think about the way how they would consume it, and this increases the value perception, so customers are more likely to overestimate the quantity.

We touched on this, by the way, in Pricing Nugget #004. If you want to dive deeper, check it out.

Customers are more likely to experience upfront what it means to buy these snack bags, and they are more likely to overestimate the quantity. Both lead to perceptual units making customers perceive the value of the chip bags as higher versus standardized units.

What does it do to customers’ willingness to pay?

The researchers ran various experiments and found out that if you only subtly change the way you present your products and their quantitative measures (e.g., amount, weight and volume) as perceptual units, customers are more likely to pay more for them; in these experiments, roughly 10% more.

The researchers also found out that this effect is more pronounced for smaller packs than for larger packs.

And this is due to the fact that for larger packs – coming with a larger number like 24oz – customers place more attention on the number instead of the units. So the effect of the units does not make such a difference anymore. And for larger quantities, the difference between the next unit of quantity is perceived as much smaller. So customers are more likely to perceive a difference between 8oz and 9oz versus 24oz and 25 oz.

For larger pack sizes, this effect diminishes.

Third, they found out that if customers read an experiential review instead of an analytical review, they are more likely to pay even more for this item.

If you present a product as perceptual units and you present next to it an experiential review instead of an analytical one, customers are also willing to pay even more.

Just changing from an analytical to an experiential review further increases the willingness to pay by 19% if the perceptual units were made salient in the first place.

Let us look at examples of experiential versus analytical reviews. An experiential review might start with "I always consider the taste before I buy snacks," and so on. And the analytical one might be more about the price value perception: "I always consider the price per ounce before I buy snacks." These are the difference between experiential and analytical reviews.

Fourth, the researchers found out that this effect is even stronger for products that customers like more.

If the perception unit was made salient and customers did not like the product too much, the willingness to pay was $1.50. But if customers would like the product, it further increased to $1.95. This explains that for products that customers like more, this effect of perceptual units is much stronger.

And fifth, the researcher performed a real-life validation.

They checked out prices on Amazon.com and found out that the price per unit is higher if products are described as perceptual instead of standardized units. And they also found that this effect diminishes with larger pack sizes.

More concretely, they checked out the average price per ounce for various product categories, and they found out that if the perceptual unit is salient, the price per ounce is $1.01 versus 57 cents for standardized units. And then they created a regression model and coded the perceptional unit being made salient as a dummy variable ("0" and "1"), and "1" being perceptional units, and they checked out what is the impact of the price per ounce if the pack size increases. They found out that if the perceptional unit is made salient, the price is higher.

We also find it in model 3, the coefficient is positive and statistically significant, and the effect of pack size (in ounces) is negative. With increasing pack size, the price per ounce drops and it drops to a level that it's indistinguishable between perceptional and standardized units.

What did we learn today?

Today we learned that customers are willing to pay more if products are presented in terms of perceptional units instead of standardized units. Whenever you have the chance to frame your product and product quantity in terms of perceptional units, you should do it.

This effect comes with no downside risk, so you're always better off.

These are the effects of salient experiential units.

• Willingness to pay increases,
• in particular for small pack sizes.
• If you put an experiential review next to it, it's even better.
• If customers enjoy the products more, it's also better.
• And it actually works also outside the lab in the real life. (In real life, it was not a causal study but just a descriptive validation study. But nevertheless, the lab experiments were confirmed or at least not rejected/contradicted.)

By the way, if you wonder whether you should buy smaller packs of chips at all versus a large bag, check out Pricing Nugget #016 to find out whether it helps to increase your self-control over your chips consumption.