With a slowing of demand, we will see increased promotional activity and a focus on sharp price points.
There will be two related but different concepts that companies will have to work through.
The first is perceived value. Companies love to compare themselves to other companies.
The second is affordability. Rather than compare to the alternatives, the question now is simply the ability and willingness of the market to pay.
Consumers are often overwhelmed with information when trying to assess value.
This presents an opportunity for companies to use eight different devices to help consumers more easily form perceptions of value:
Framing Effect
- Consumers show higher price sensitivity when they view the cost as a loss rather than a missed gain.
Reference Price/Expectation
- People react to price based on how it stacks against perceived alternatives.
Difficult Comparison Effect
- The challenge of comparing alternatives makes consumers less price-sensitive to well-known or reputable products.
Price-Quality Effect
- Without other value indicators, a higher price often signals superior quality.
Expenditure Effect
- Larger expenditures heighten price sensitivity by dollar amount or relative to income.
Fairness Effect
- Prices perceived outside a ‘fair’ range evoke greater sensitivity, depending on the purchase context.
Switching Cost-Effect
- High costs associated with changing suppliers reduce price sensitivity.
Shared-Cost Effect
- The presence of reimbursements can influence how sensitive consumers are to prices.
Interestingly, not every category experiences these effects uniformly, but understanding them can empower your strategy—whether you’re playing offense or defense.