Sunday, 22 February 2015

The price made me do it!!!

It's been a while since my last posting.   My last couple have discussed disability and critical illness insurance.   Before we take on life insurance, a really meaty topic, I'm going to divert a bit into a few other topics while I figure out how to break up life insurance into digestible pieces.

Have you ever been in a store or online, looked at all the prices ending in 99 and wondered if anyone is really ever affected by them?    Apparently, it does work and makes us feel like we are getting a deal.    

The interesting thing, in Canada, is we no longer have a penny coin so, if you paid in cash, you wouldn't get the 99 price.    

Last year, I read an article called “The Psychology of Price” done by Terry O’Reilly as part of his CBC Radio Under the Influence series.  In it, he talks about how marketers use different pricing strategies and how these influence our purchasing behaviour and our enjoyment of our purchases.  Ever since I read this, it’s made me more aware of their existence that I think I always intuitively  sensed but never really fully realized the impact.

One very effective strategy, he talks about is “Anchoring" and has two pieces.  The first, is showing you a price to help convince you of the item’s value.   If an item has a high price, your perception is altered to make you associate a higher value with it.   The second is offering multiple products with similar basic functions but with different prices.    The higher priced item may make you think the lower priced item is a good deal.   After reading this article, I realized this is everywhere.  Here are two examples.

You want to make a charitable donation and are offered some preset amounts.

The smallest one seems to be too low and feels a little "cheap".  The biggest one(s) is more than you're willing to give, so you pick one of the middle ones.   What if there were no preset amounts?    Would you have given as much as you did?

Here is a second example:

You want to buy a fruit arrangement online.    You find an arrangement you like and click on the link to get details.

There are 2 prices and the arrangement shown is for the larger one.   You think the larger one looks nice and the smaller one is only $10 cheaper so why not get the larger so you're sure of what you're getting.  You've just been steered towards the higher one.

Well that’s all for now.  I’d highly recommend taking a read of the full article.  If you have any ideas for a future topic please, feel free to post a comment (anonymously if you’d like) or email me.

James Whelan

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