The Joy of Price-off
To a rational consumer, there should be no difference between the attractiveness of a product which is priced at RMB 90 vs. one which shows the original price of RMB 100 but is discounted to RMB 90. However, when did you last meet a rational consumer?
When the product is discounted down to RMB 90 from an original price of RMB 100, the original price acts as an anchor and the discounted price offers a very alluring contrast to the anchor. The discounted price is a source of many delights to the consumer and when she sees it, she will definitely congratulate herself and thank her fortune for stumbling upon such a lucrative offer. The behavioral economist concept of “anchoring” is linked to what the psychologists describe as the “contrast principle” - when presented with two products, prices or ideas in succession, consumers tend to exaggerate the difference or the contrast of what was presented second from what was shown first.
Richard Thaler, one of the founders of Behavioral Economics, describes the twin concepts of acquisition and transactional utility. Acquisition utility is what the consumers experience when they exchange their money for a product or experience that they value and want to enjoy (or think they will enjoy). The transactional utility is accrued when the consumers feel that through good fortune or their own astuteness and watchfulness they have managed to acquire the object of desire at a price that is lower than what they really should be paying.
Marking a product at RMB 100 and then marking it down to RMB 90, is a marketing device to enrich the consumer by adding a bit of transactional utility to her acquisition utility.
It is not surprising that certain products are almost always on a sale, giving the consumer the joy of transactional utility and the satisfaction of marveling at their luck. This is particularly true for relatively infrequently bought products so that the consumer is not able to see through the ruse of “perpetual discounting”.
Are their ways of offering the consumer transactional utility other than “price-offs”? Clearly this is an important area for marketers to explore and research. The transactional utility is all about the joy of buying - and marketers need to explore how they can enhance this joy for their specific products. Channel owners and particularly online channels also need to explore what bells and whistles can trigger the transactional utility, so that the shoppers keep coming back - not just to acquire the products that they need but also for the joy of shopping.