We know the price of nothing, and the value of less
Our view of value is highly malleable to small influences, writes Total Media’s William Hanmer-Lloyd – and that means advertising can change a consumer’s view of how much they are willing to pay
In economics and much of advertising we assume that consumers have a set value they believe different products are worth, and a set amount they are prepared to pay for them. Yet research shows that our perception of an item’s value is not set. It can change significantly depending upon our mood, the situation we are in, relevant and irrelevant information, and small environmental cues.
Value is relative
Prices are rarely judged in absolute terms but in relative terms. This is because humans fit information and decisions into different frames of reference, therefore changing how they approach the same problem, in different circumstances. We judge value and worth using a number of comparisons (things don’t have an inherent value, merely a value when compared to other things). These can either come from memory or from the surroundings. Or advertising.
Some early work that captured this was an experiment in 1975 that compared how people valued cookies in two glass jars. One jar was full of cookies; the other had only a few left in it.
Participants were asked how much they were prepared to pay for a cookie. Those who saw the cookies in the near empty jar were prepared to pay far more than those who saw the cookies in the full jar. Despite the cookies being identical, people felt that if they were scarce they must be worth more.
Dropping the anchor
Scarcity may be seen as relevant, as it represents reduced supply. However our perception of value can be impacted by irrelevant details as well. One example of this is when we are given different anchors, a comparison by which to judge a product, shortly before valuing it.
In a bidding game ran by behavioural economist Dan Ariely, American respondents were asked to write down the last two digits of their social security numbers, before placing bids on a number of different products (French wine, chocolate, etc.). The average offer from those with social security numbers ending between 1-20 was $16 and the average offer from those with social security numbers ending between 80-99 was $56.
The participants could not see beyond the random anchor that had been implanted in their brain just before being asked how much they would pay – they could not help but use it as a comparison to the figure they chose. This is because our rational brains cannot discount unimportant facts. As such they can still influence decisions with which they have no relationship. Interestingly the vast majority of the participants claimed that being asked their social security number did not influence their decision.
Value signalling
If our view of value is so malleable to small influences, then advertising should be able to change a consumer’s view of how much they are willing to pay, especially if it can reach consumers relatively near to the buying moment.
Advertising will often try to influence what “psychological accounts” we fit a product into. A watch can be a tool to help tell the time, or a signal that we are wealthy – something we are often prepared to pay far more for. A night at a play can be an experience we will enjoy, or an experience that proves we are culturally interesting, again influencing our perception of value.
But advertising can act in subtler ways. Kinetic carried out research using out of home media and wristwatches that showed that more expensive formats (a premium outdoor site compared to 6 sheets) influenced consumers to believe that a watch was worth much more. With limited understanding of what makes a watch expensive, we infer the value from the type of media used (a form of contextual bias).
The perception of value
This is all important to advertising because it can change all of these factors for consumers. An ad can frame the comparisons people will use to judge a product, or suggest a product fits into a different psychological account, or even suggest scarcity (offer ends this weekend! order now before product sells out! limited tickets left!).
This will all influence how consumers value a brand, and thus how much they will be prepared to pay for it, without having to try to rationally change their view about the intrinsic value of it. It is the same cookie, watch or play, but we significantly change our valuation, and how much we are willing to pay, due to the way we think about the products, rather than what we think about the products.
William Hanmer-Lloyd is a behavioural planner at Total Media