Direct Line Blog

The Price, What's Right?

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The Price, What's Right?
The Price, What's Right?

The 21st century consumer is savvy—and getting savvier every second. Attribute it to the Internet, to smartphones, to general modern-age cynicism, but consumers today are more sensitive than ever about a promo that looks too good to be true. It's a fact currently at odds with a prevailing belief held by most retailers: that consumers will always be attracted to the lowest price.

Not so, says Adilson Borges, head of the Value & Persuasion Research Center at Reims Management School (RMS), a top French business school located about 130 kilometers east-northeast of Paris. He says low prices don't always equal consumer enthusiasm. According to a series of recent studies released by the school, price match guarantees—automatic refunds based on lower prices offered by competitors—can work, but not if retailers get carried away. Listen up big boxers.

“Some retailers aren't only offering the price difference—now they're starting to give consumers two times the difference or even 10 times the difference,” Borges says.

That kind of seemingly overeager behavior on the part of retailers becomes less of a differentiator and more of a stumbling block, triggering a ‘Yeah sure mister, I guess you've got a bridge to sell me, too' kind of attitude in consumers, who get to wondering why the retailer seems so anxious.

“They don't believe you and there's a boomerang effect regarding their trust of the retailer,” says Borges. “They might think, ‘It's too much. Why would the retailer do that?' Plus, it looks like [the retailers are] penalizing themselves.”

The apparent overzealousness on the part of retailers can be at least partially attributed to fear of a consumer behavior that keeps brick-and-mortar merchants tossing and turning like waves in a sea at night. I speak of…showrooming (bloodcurdling scream).

“With their price match guarantees retailers are trying to say, 'You will not be finding this product at a lower price anywhere, even on the Internet,'” Borges says.

Trying, but not really succeeding. For example, showrooming was bigger than ever this holiday season. Accenture's 2012 Holiday Shopping Survey found that more than half—we're talking 56%—of shoppers said they intended to use their smartphones to research products in-store and make their purchases online later. Yeesh.

So, what can retailers do to stand out in the crowd—or as Borges puts it, be “more audible in the marketplace”—without turning off wary consumers?

First, don't scare customers away with offers that seem too awesome to be real. Second, get creative. One strategy that's gaining popularity in Europe, Asia, and to some extent, Latin America right now is an effort to reduce the “price reaction perception.”

“Instead of talking about a Toshiba notebook computer for $400, a retailer will say, ‘This Toshiba notebook computer is 10 times $40 dollars,'” Borges says. “Consumers know what they're trying to play, but even though they're aware they still feel like they're getting a good deal. It has a psychological effect on their decision process.”

While it's true that price guarantees can inspire trust—“consumers might,” as Borges says, “think the retailer is only offering the guarantee because it knows it has the lowest price on the market”—it's important to remember that they can also go awry.

“If consumers trust the retailer's confidence, that's wonderful,” says Borges. “The other explanations are more complicated to manage—like the retailer might appear desperate.”

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