Pricing tricks

01.Introduction

As consumers we are constantly evaluating prices when we shop, so you’d assume we’re experts at judging the value of the things we buy.

According to new research, this just isn’t the case.

Consumers use short cuts to compare the price of a product with other prices, rather than with similar products. This somewhat unexpected behaviour is significant - the way prices are structured affects how people shop – and also sheds light on how pricing plans are structured, restaurant menus are designed, product layout is organised in shops and sales, and discounts are advertised.

Anchors away!

We often don’t have enough time or information (or sometimes there’s just too much information) to make every purchase entirely rational.

Australian and US research has shown that the first price we see becomes the “anchor” price and acts as the reference point for subsequent prices. Retailers, marketers and merchandisers know that consumers judge price by referring to other prices and are actually a bad judge of value, and they use this to their advantage.

Pricing tricks that create an artificial anchor price can hide high prices as well as poor value, and make it very difficult for consumers to make fair choices about what they buy. So it’s very important that consumers are armed with some tools before marching into the shops.

Hidden tricks in restaurant menus

Menus are often designed to highlight the price of food and wine as much as the cuisine itself. An extremely high-priced bottle of wine may be included on the menu along with a very cheap bottle. This combination directs people to the middle-priced wines and acts as the anchor prices to create an artificial mid-point, which diners assume is the best value

In reality these wines may have a higher markup and actually represent poor value – yet you can’t see this clearly because you’re comparing the price of the cheapest bottle of wine with the most expensive.

Another trick is where expensive items such as steak or seafood are offered in two sizes. The smaller, less expensive dish is the item the restaurant expects to sell in larger quantities; the larger, more expensive option is included on the menu to make the smaller size appear cheaper and encourage diners to go for that item. The cheaper item may not represent better value but it’s virtually impossible for diners to judge value for money in the absence of weight or unit price details.