It looks like it’s been furnished by discount stores.” – Jackie Kennedy

Is it discounting to gain marketshare, customer traffic, sales, unscientific buying methodologies, offset volume, or is it simply that the business model does not have a clearly differentiated value proposition that is easily communicated and clearly understood?

This topic of price structure, consumer elasticity to demand, and the age old question of when, where, and how to discount is the subject of this week’s blog.  This week I asked our RDG consumer insights director, Katharina Kuehn, to comment on this topic of where and when discounting plays an appropriate part in the retailer strategy, or more importantly, where discounting can sit in the hearts and minds of today’s consumer.

Katharina’s perspective is certainly borne out by the customer insights work carried out by RDG Insights.

“Where price sits in the decision making process depends on various factors and needs to be determined case by case to give a reliable answer,” she says.

What we invariably find is that the importance of price varies significantly across 1) different consumer types and segments, 2) different categories, and 3) different brands.

Where brands ‘educate’ their customers to discount and buy based on price – price becomes one of the top decision drivers. Where brands are able to offer additional emotional and functional value, price is of less, or often little importance.

Our studies also consistently show that price perception is to a large degree a consequence of customer engagement and satisfaction – i.e. If customers love the experience they typically perceive the price – value – relationship as positive.

In summary, consumers’ price perception is not objective, but rather determined by the perceived value. The more value consumers perceive they get (rational and emotional), the less important price becomes in the decision making process. Moreover, there are particular consumer segments that are rejected by discounting.

Here’s a number of practical business fitness tips to consider when thinking about the pricing of your services and products:

1. Don’t ask customers what they would pay – we are not effective  at predicting our own behaviour (Click here for full article)

2. As with any other perception phenomenon, price perception is relative and is influenced by what we have seen before. This is why good salespeople start with a high anchor price, to frame all following offers against this in the consumers’ mind

3. Don’t necessarily take your most expensive products off the shelf if they don’t sell, because products interact with each other in terms of price perception and some expensive ones can just be there to sell other product

4. When communicating a price markdown in the most effective way, always have the original price displayed physically bigger than the discounted new price. Why? Because when the physical size of the numbers of the price is smaller, it is actually perceived as lower. This made a 22 per cent difference in sales to the unfavourable alternative of a small original and a bigger discounted price when tested

5. Know your audience. Not everyone’s brain is cheering when they see discounts, some consumer types actually reject buying discounts

Contact Brian at Retail Doctor Group on (02) 9460 2882 or brian@retaildoctor.com.au to grow your business fitness.

*RDG insights is a consumer insights  subsidiary of Retail Doctor Group. Contact Katharina Kuehn on (02) 9460 3887 or katharina@rdginsights.com.au to really understand your customer.

First published on insideretail.com.au November 2014