Pricing strategies are pivotal in shaping, understanding, and predicting consumer purchasing decisions. In particular, psychological pricing communication techniques can have significant influence, tapping into the subconscious parts of consumer behaviour.
Our previous article discussed the cognitive association technique in psychological pricing strategy. In this article, we’ll discuss the power of the attribute substitution theory in pricing.
What is attribute substitution?
Attribute substitution is a cognitive process that occurs when faced with a mentally complex decision. Instead of grappling with the complexity, our brain substitutes this decision with an easier-to-perform task. This process underlies several cognitive biases and has a significant impact on consumer behavior.
For example, when shoppers are considering a complicated purchase, they often ignore technical and mentally challenging details, such as emission figures for a car. Instead, they make their decision - usually unconsciously - based on a simpler aspect, like the color of the car.
So, when we think about how we make a purchasing decision, attribute substitution uses intuition to influence how we perceive value and how much we're willing to pay. By understanding the power of substitution as a psychological pricing technique, we can gain profound insights into consumer decision-making processes.
How to apply attribute substitution?
As mentioned above, shoppers crave simplicity above everything when making purchasing decisions (in fact, this craving for simplicity applies to all aspects in life for most people).
Brands, products but also prices that are easier to think about and mentally process, tend to be more appealing. So, to attract your customers, the magic formula should be to keep it as simple as possible – and this applies first and foremost to your prices.
Here are a few examples of how you can apply attribute substitution in your pricing strategy and communication:
- Use rounded prices for emotional purchases: Rounded numbers are easy to process, making them ideal for emotional products like artwork or beauty products. Specific numbers, on the other hand, work better for rational purchases that appeal to the logical brain.
- Start with a high, exact price for negotiable products: Mentioning the exact price discourages significant deviations in heavy negotiation. Why? Because it's harder for the brain to jump from an exact number to a considerably lower one. This technique appeals to our primal brain, which prefers rounded numbers. Also, an exact (high) price more strongly communicates the idea: ‘This is the price, and you have to take it or leave it’.
- Offer discounts on bundled products: By bundling products, customers find it difficult to associate a specific value or price with each item. They get an interesting price for two (or more) products or services combined, making it impossible to allocate a specific cost to one of the items. This reduces the perceived pain of purchasing this one exact item, so customers never know how much they exactly paid for each item. This simplifies the decision-making process and reduces the perceived pain of purchase.
- Set small price differences between similar products: Offering the same prices for similar or identical products can make it challenging for consumers to choose between them, giving them stress of choice. Which one is the way to go if they cost the same? By setting small price differences (and one product serving as a price anchor, a reference point), consumers can compare, making the decision easier. Even if most consumers choose the cheapest option, it still generates more revenue compared to when customers can't choose and buy nothing.
- Provide a reason for the discount: This technique is based on the scarcity principle – which we’ll cover in the following article - in behavioral economics.
Explaining the discount adds an extra layer of temporality and urgency. It emphasizes that the discount is temporary and encourages people to buy now to avoid missing out.
Showing the reason behind the discount also provides an explanation and context to the consumer. When consumers (every human being actually), receive a reasoning for something (even if the reason doesn’t make that much sense…), this is always better accepted and faster processed. It instantly makes it an ‘easy task’ in consumers’ mind’, stimulating in turn the purchase behaviour.
- Use easy-to-process discounts: Offer discount percentages that are easy to calculate and use round numbers whenever possible. Consumers are more likely to respond positively to easy-to-process discounts because they avoid exact calculations, tapping into our primal emotion of happiness.
- Pull the safety/security card: People have a primal need for safety, and low probabilities are weighted more heavily. Highlighting the low probability of a negative outcome can make customers more willing to pay extra for the perceived increase in safety or security. For example, when marketing a premium antivirus software feature, there are two ways to present its effectiveness:
- "This upgrade increases your device's protection against viruses from 95% to 99%."
- "This upgrade reduces your device's risk of virus infection from 5% to 1%."
While both statements describe the same 4% improvement, the second approach is often more compelling to consumers. It frames the benefit as a five-fold reduction in risk (from 5% to 1%), which creates a stronger perceived value!
Interestingly, this perception persists even though the absolute risk was already low, and the actual impact on user experience may be minimal. This example illustrates how framing and cognitive biases can significantly influence consumer decision-making, even when the underlying facts remain the same.
Conclusion
It’s clear that well-thought pricing communication techniques that make use of the substitution theory can influence how consumers perceive the value, quality, and scarcity of products. However, as with other psychological tactics, this technique might raise ethical concerns about transparency. That is why businesses must use these techniques responsibly to ensure ethical standards and consumer interests in the marketplace.
As technology advances and consumer preferences change, the use of psychological pricing techniques will continue to take other formats and appear on other channels. In the future, researchers may explore the intersection of neuroscience, behavioural economics, and marketing to better understand how the brain responds to pricing strategies. By understanding how substitution affects consumer behaviour, industry experts can develop ethical and effective pricing strategies in the constantly changing marketplace.
To summarise, the relationship between substitution theory, intuitive brain stimulation, and psychological pricing (communication) techniques provides a fascinating perspective on consumer behaviour. If you're looking to take your business to the next level, you need to nail your pricing strategy and communication.
At boobook, we understand this and are committed to helping you navigate the complexities of pricing. Our approach combines robust consumer-based data analysis topped with insights from behavioural economics to create pricing strategies that align with your customers' decision-making processes. This drives profitability and business growth.
In our upcoming articles, we’ll talk about loss aversion and prospect theory, and how this pricing technique that can transform your approach to pricing strategy, so stay tuned!
