What is the Centre-Stage Effect?
Centre-Stage Effect is a psychological pricing strategy.
The relative position of a price relative to other prices can strongly influence the purchasing behavior of consumers.
If consumers are given a choice of a low, middle, or high price option, they tend to pick the middle option.
This is especially true if consumers don’t know how much a product costs.
Consumers do that because they want to minimize the risk of:
- receiving poor quality and
- spending too much.
Therefore, the fewer information consumers have about a product or services features and prices, the stronger the effect is.
The only condition for the Center-Stage Effect to work is that consumers must not have the individual needs of buying the lowest price or the best quality.
The effect implies that you should aim for selling the middle option.
Does the Centre-Stage Effect work?
Let’s say you need a new toaster.
It doesn’t necessarily have to be the best.
After all, it’s just supposed to roast the toast.
But you don’t want to buy bad quality either, because it shouldn’t break immediately.
The Best Buy close by offers three different toasters, ranging from $14.99 to $299.99.
You decide to buy the middle option priced at $49.99.
The Magic of the Middle option does especially work for things we don’t buy so often.
The same price of $49.99 can evoke completely different responses by consumers, depending on whether it is the lowest, middle or highest price.
The number of different alternatives also affects the purchasing behavior of consumers.
If the model with the price of 299.99$ had not been offered in the Best Buy, there’s a high chance that you would have chosen the product priced at $14.99, instead of the one priced at $49.99.
Price Anchor Effect
When you buy a product of a category that you are unfamiliar with, you typically don’t know what’s a reasonable price or what’s a bad price.
Is $10.00 a reasonable price? Maybe 25.00$ Or even 100.00$? No Idea.
I wish I had a reference point!
What is the Price Anchor Effect?
Price anchoring is a cognitive bias where consumers rely heavily on the first piece of information given in an interaction if they feel uncertain about their price judgment.
The initial information establishes an anchor, and consumers base their buying decision-making subconsciously around that frame of reference.
It can make sense to include a product in the portfolio that no one will ever buy.
Does the Price Anchor Effect work?
Price anchoring is very common among car salespeople.
A car salesperson would show a potential customer an expensive car first, anchoring the perception of the price at the high end.
After that, they would show the potential customer mid-range cars.
This is where the anchoring bias changes the price perception of customers.
Because the anchor price of the expensive car was shown first, the mid-range cars seem like a bargain.
They seem so much cheaper than first offer, so that customers often decide to buy these and pay the price.
When consumers buy a product, they don’t evaluate prices by themselves.
Consumers always evaluate prices in relation to the value they receive for the price.
However, what if that relationship changes because of a new alternative?
What is the Decoy Effect?
The Decoy Effect asymmetric dominance effect) is a pricing strategy that implies that the introduction of a third and mispriced alternative has a strong influence on consumers’ product choices.
The price decoy changes consumers’ preferences of the previous alternatives.
It nudges consumers to choose the higher priced of the two original options.
Small changes can already have a significant impact on sales and revenue.
This effect is also is related to the Anchor Price Effect.
However, there’s a limitation for the Decoy Effect: You cannot overextend the assortment to more than three options, as consumers also have to deal with immense complexity.
If purchasing decisions get too complicated, in the end, consumers might not buy at all.
Does the Decoy Effect work?
An Experiment from the book “Predictably Irrational” by Dan Ariely shows impressively how the phenomenon of the Decoy Pricing Strategy works.
It included two tests for the business magazine “The Economist”.
Test A offered only two alternatives:
- Online: $59 (68%)
- Print + Online: 125$ (32%)
Test B offered three alternatives:
- Online: $59 (16%)
- Print: $125 (0%)
- Print + Online: 125$ (84%)
So while both tests offered an online subscription and a combined subscription (print and online), test B also offered a print subscription as a third option (the decoy).
Obviously, no one bought this decoy, but adding a third option had a notable effect:
By adding a decoy to the pricing structure, they were able to increase the proportion of buyers of the expensive option by an astonishing 52 percent!
This result withdraws from economic rationality.
If we assume that both offers lead to 1000 new subscribers, turnover would be as follows:
- Test A: $80,120
- Test B: $114,440
That’s an impressive 42.8% ($34,320) increase!
Price Threshold Effect
Odd prices are popular.
Especially in retail.
The price threshold effect makes use of odd prices.
What is a Price Threshold?
A price threshold is a price point where the price function of a product or service shows a kink.
In general, Threshold price-points are just below round prices (such as $10.00, $25.00 or $200.00).
Consumers are used to odd prices and show increased price sensitivity when a price exceeds a price threshold.
What is the Price Threshold Effect?
The price threshold effect (also left-digit effect) is the presumption that setting prices just below a price threshold triggers an above-average change in sales volume.
The strategy is, that because consumers read digits of a price from left to right (western world), they perceive the numbers of a price with decreasing attention.
For example: a price of $2.99 is perceived as 2 plus something, so consumers don’t recognize that they are paying $3 instead of $2 plus something.
The Price Threshold Effect assumes that consumers:
- underestimate prices that lie under round numbers and
- overestimate prices that lie above round numbers.
Does the price threshold effect work?
While there are many cases where the price threshold effect leads to positive results, there is still no valid scientific proof.
Research has shown mixed results with no findings of a systematic effect.
They can even have negative consequences.
Sometimes increasing a price right above a price threshold (for example, moving a price from $3.99 to $4.00) even lead to an increase in sales.
However, the price threshold effect proved that prices like $2.90, $4.95, or $12.50 make little sense.
When you decide to stay below a price threshold, you should tap your full potential by charging prices like $2.99, $4.99 or $12.99.
These slight price increases (from $2.90 to $2.99, $4.95 to $4.99 or $12.50 to $12.99) will barely have any effect on your sales volume, but they will increase your profits significantly.
Therefore, the price threshold effect is more to be seen as tactical instead of a strategic issue.
There is also a psychological influence of the last digit of a price.
We can distinguish between Price Image Effect and Quality Image Effect:
- Price Image Effect: signals a favorable offer
- Quality Image Effect: indicates a lower quality
Nine-ending prices (the last digit of a price is the number 9) signal a beneficial offer with lower quality.
If the last digit of a price is a 0, it signals no Price Image Effect or Quality Image Effect.