How independent retailers - like you - can apply insights from a leading consumer behaviour expert to improve revenue (and profit) without having to resort to discounting.
CUSTOMERS CAN BE INDECISIVE, PARTICULARLY WHEN IT COMES TO HOW THEY’LL SPEND THEIR HARD-EARNED CASH – AND WHO CAN BLAME THEM?
They’re weighing up their options, looking for the best value. But, have you ever considered the psychology behind how your customers determine the value of the products on your shelves?
Behavioural psychologist, and leading author of several books on business economics, Dan Ariely found that people determine the value of things through relativity. It basically comes down to how you position products relative to the other products around it, which could ultimately drive your sales forward.
“A salesman places three television sets together on the display shelf. They cost R6 900, R8 500 and R14 500 respectively. Most people would go for the middle option, because it is ‘relatively’ the best mix of cost and luxury. The salesman knows this and has deliberatively placed an expensive option that he knows won’t sell next to the TV he does want to sell. The TV’s purpose is not sold, but rather how he’s positioned the goods in the eye of the consumer – to make everything else look less ‘valuable’ in comparison,” - Ariely explains
You can play a part in how your customers determine the value of items and spend their money by strategically placing products together in particular environments. Here’s how:
THE HACK:GIVE YOUR CUSTOMERS A DEFAULT CHOICE
So, how do you convince customers that the retail options you’re offering them are the must-haves of the day? Ariely says you need to give them default choices – a few product options that they won’t need to spend too much time deliberating over.
“All of the decisions consumers make today are vastly influenced by the path of least resistance – particularly in a world where leading businesses package their decision environments with relatively tight control,” he adds.
You need to consider how you’re placing products around the shop, with strategic intent, to ensure customers can make relatively quick decisions to derive the value of something. It can be as simple as offering low/medium/high-priced similar goods on a shelf that serves as the trigger for a card swipe.Behavioural economist,best-selling author and
TED Talks rockstar, Dan Ariely.
THE PSYCHOLOGY OF
RELATIVITY IN ACTION
Offering an inferior
(and costly) option
A few years ago, The Economist was battling to improve subscription sales but the company’s subs division was at a loss – the special offers where there, but readers just weren’t biting.
There were three options being offered, an online subscription to the website for $59, a print subscription for $125 and, thirdly, an online and print subscription for $125.
Ariely considered which pricing model would attract the most sales by offering the choices to his students. Out of 100 scholars, 0% chose the print subscription, while 84% opted for the combination deal, and 16% for the web subscription.
He then repeated the poll without offering the unpopular print-only alternative. In the second round, 32% chose the print subscription, while 68% preferred to go web-only. This proved to Ariely that the presence of the clearly-inferior (costlier) option transformed the decision process by making the combined web and print subscription seem like a better deal.
Placing products together
to create perceived value
Leading American retailer, Williams-Sonoma tried to sell home bread-baking ovens for $250. Unfortunately, their sales were poor which led some of the company’s execs to think that that the market didn’t want to buy a home bread oven.
But, instead of pulling the ovens from the shelf, the company decided to make a bigger version that cost 50% more and placed it beside the original. In so doing, the original bread oven was then perceived by shoppers as a relatively better option than the larger version. The resultant effect: Sales of the original home bread-baking oven rose substantially.