How you can use buyer psychology to create a competitive pricing strategy
Simon-Kucher explains why brands should put consumers first in determining pricing.
Among the many things that can make or break the success of a QSR, pricing might be the most important. With consumer tastes changing as quickly as the industry can keep up with them, finding the right price point could grant the competitive edge that sets one brand apart from the rest.
Convention dictates that pricing should be derived basic seller economic principles. Factors like supply and demand, projected sales, fixed costs, and even prices of the competition all come into play in determining prices. During the QSR Media Asia Conference 2019 however, Rosalind Hunter, senior director at global strategy consulting firm Simon-Kucher & Partners, suggested a different approach: putting consumers at the heart of pricing.
Hunter said that getting into the consumer mindset through key psychological principles can help brands create a holistic approach to pricing and improve the value of existing and new products.
“When you choose your lunch or dinner, are you looking and thinking rationally? Are you doing cost-benefit analyses at lunch, or are you bored, excited, distracted, or unhappy?” she said. “These all make people choose their meals and that’s what you need to be thinking about when you’re setting your prices. Yes, you need to make money, but that’s not what your consumers care about.”
The first step would be determining the areas of the brand experience provide the most value to consumers. Things like food quality, freshness, store atmosphere and decor, convenience, and comfort provide the key value elements in a brand’s proposition. Brands need to take stock of how well they perform in such areas relative to the market before they can determine a suitable pricing strategy.
According to Hunter, setting “good” prices involve finding areas that provide value to consumers, and doubling down on the areas where your brand is strongest.
Using buyer psychology to boost sales
There are certain psychological approaches to pricing that can help make products more appealing to consumers. For instance, research done by Simon-Kucher & Partners found that in listing similar products of varying sizes, generally it is better to group items in sets of three rather than two.
“We know that when people see multiple products, they will tend towards the center,” Hunter said. Offering items in bigger sizes, she noted, give the perception of added value to all other products on the same listing.
There are caveats, however. Anchors and reference points matter when grouping certain products together. For instance, in offering burgers of three different sizes, “small”, “medium” or “large”, consumers will tend to purchase the middle option. Introducing a “very small” option will tend to shift consumer preference towards the “small” option. Conversely, when introducing a “very large” option, consumers tend towards the “large” option.
“Three is not always the magic number. If you introduce something smaller and cheaper, you are actually pulling people down towards the cheaper products. It’s all to do with the relativity of the products around.”
Non-price elements also play a role in how consumers decide on their purchases. How a brand orders and highlights specific items can influence their appeal.
In suggesting these tips, however, Hunter warned brands against putting items with seemingly unfair price points on menus aiming to manipulate pricing, as this tends to lead consumers to mistrust a brand and hurt its reputation in the long-term.
“You need to be careful about fairness, consumer perception, and the impact of your pricing,” she said.
