The theory of relativity
By creating a comparison with a more expensive option, brands can create a perception of good value and significantly boost sales, learns ZenithOptimedia’s Richard Shotton.
An interesting bias unearthed by social psychology is that our brains are poor judges of absolutes. We are wired to make relative judgements, terming an item as large or small, heavy or light, only in comparison with other similar objects.
The same holds true for price, and as consumers, we have a limited absolute conception of what is good or poor value for money. Instead, we make judgements about value by comparing it to what we have paid in the past or what we know about competitors.
Our fluid perceptions are an opportunity that marketers can exploit simply by altering the context in which we consider the value of a brand.
At ZenithOptimedia we’ve asked over 1,000 consumers whether they consider brands to be good value or not. We ask the question in two scenarios – once comparing the brand to a cheaper competitor and once to a more expensive one.
In one test, we told consumers that a 250g box of PG Tips cost £2.29, whilst the same weight of Tesco own label tea cost £1. In this scenario 31% of the audience thought the PG Tips was good value. We then asked another group the same question but with one small change. We swapped Tesco own label for Twinings priced at £3.49. In this scenario the number who thought PG Tips represented good value more than doubled to 65%.
These results hold true on all the brands we have tested: from cars to ice cream. In every case when a product is compared to a higher priced competitor it looks better value than when compared to a lower priced one.
At first these findings seem obvious. Of course, brands look better value when compared to a higher priced variant! However, the interest comes in the practical applications, many of which are not being harnessed by marketers.
The first and most dramatic approach is that brands can appear better value by changing their mental competitive set. The rewards from this can be phenomenal and Nespresso is a great example of a brand successfully doing this.
By selling espresso pods in cup servings they managed to change their competitive set from packets of roast and ground coffee to shops such as Starbucks or Caffè Nero. By creating a comparison with a more expensive option Nespresso has created a perception of good value and significantly boosted sales.
In certain instances it might be hard for brands to change their competitive set. However, they can change the frame of reference between their own brands. Introducing a higher end line will make the mainstream variant seem even better value.
William Poundstone, in his brilliant book Priceless: The Myth of Fair Value, provides an example from Williams-Sonoma, which produce bread makers. When it introduced a $429 model alongside its basic $279 option the sales of the cheaper offering almost doubled. Sales of the $429 model were poor – but its value lay in how it changed perceptions of the other variant.
The final application is to alter the physical purchase context. Rolls-Royce has cleverly applied this approach by selling its high end Phantom cars at yacht shows. In this situation they are not compared with cheaper marques, as they might be at car shows, but with more expensive boats.
This research shows that whether or not a brand is judged to be good value is not just based on the actual price. Marketers need to also consider the relative ways in which consumers make price judgements. For marketers who do this successfully the rewards could be huge.
Twitter: @rshotton.