Why a Discounted High Price and a Low price are Not the Same
Why a discounted high price and a low price are not the same.
You need to think again if you believe your customers perceive the price of your products or services equally, whether that is a higher price with a discount or a low price.
Our subconscious mind creates a plethora of associations when we are in the process of considering buying a product or service. Our decision to buy or not dramatically depends upon whether the value we expect to receive from a specific feature or function of a product or service is realized. A product or service that is branded will always influence the perceived value or benefit. It is the same for lack of branding – questions will arise on how good it will be after it has been purchased. A salesperson selling a product or service will also have a significant influence over how we will associate value and benefit to that product or service – like how the salesperson presents themselves as well as the product or service they are trying to sell. These associations can add to the value expected as well as detract from that value. In the same way, some brands add significant value, while others remain neutral as well as some detract from that value; some features might add varying degrees of value; others remain neutral, and some can detract from the value.
So, there is a natural mixture of associations that can be summarized as having a “perception of value.” What’s more, all this can happen in the blink of an eye. It happens nearly instantaneously while the potential customer is engaged in the decision-making process, determining whether they will purchase your product or service or not. What this means is that nearly all purchases are decided without making an accurate valuation of the different products or services that are available in the marketplace. What happens is that we use our “perception of value” or gut feelings to help us in the decision-making process. Behavioral economics uses the term heuristics for this process.
The price of the product or service makes an immediate association for us as soon as we see it, and that is between our “perception of value” and the price. This association is purely emotional, but one in which the outcomes are pretty simple to come by. There are only three possible outcomes:
The price is way above your “perception of value,” and therefore, you will not purchase the product or service.
The price meets your “perception of value,” and because of this, you will purchase the product or service. This outcome is valid over a wide range of prices.
The price is well below your “perception of value,” and therefore, what you initially thought was going to be an adequate product or service, now must have some perceived flaw you did not initially discover, so, taking that into account, it is highly unlikely that you will purchase the product or service you are considering.
It should go without saying that “perceptions of value” will differ significantly for each individual; also, that perception will differ to the influences of different circumstances and times. However, that is a topic for another time and article.
So, suppose you set a price for your product or service that is too low. What generally occurs is the buyer’s expectation of the product or service may become inferior (even though this cannot be proven when they are making a purchasing decision). Why does a discounted price work differently? It is because the buyer’s “perception of value” then becomes connected to the original price before the discount was added to it. Hence, the discount now takes on the meaning for the buyer that the product or service is perceived as a bargain. It is a better deal all around for the buyer than before.
So, this can be summed up in a more formulaic manner:
Price compared with “perceptions of value” = a purchase or no purchase decision
Price compared with “perceptions of value” + discount = an excellent bargain for the buyer
One thing that needs to be noted at this time is that the discount cannot be too significant or out of proportion. If you discount your product or service too heavily, the potential buyer may think twice about buying your product or service – you will have added a seed of doubt to the equation of the purchase-making decision. Heavy discounting may have the exact opposite effect to what you – the seller – initially intended – a higher sales volume, when now you may encounter a lower sales volume. It works in the same way as setting your prices too low; an excessively large discount will generate a degree of doubt in the mind of the potential customer. They may begin to think, “this seller has got to be desperate to sell this, probably because it is an inferior product or service that nobody wants to purchase,” or “the seller has realized the product or service is faulty, so they must offer a significant discount to move these on quickly.”
So, in conclusion, most potential customers are pretty quick in deciding the perceived value they have of a product or service that they are thinking of buying. Then, they proceed to compare that value with the price and begin the decision-making process as to whether they will buy the product or service or not. It is well recognized that proportionate discounts that are reasonable and not too significant will drive higher sales because the customer’s “perception of value” will be anchored to the original higher price and not the discounted lower price. Therefore, a discounted high price is not the same as a lower price – even if the dollar value is the same! I hope this article has helped uncover that misconceived myth.
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