Transcript PPT - Advertising Principles

Information: Prices
Adapted from J. Scott Armstrong
Updated January 2015
Prices-R17
Learning Diary
The lectures follow an experiential learning experience.
To make this work properly:
1. Obtain a learning diary (paper). A 10 x 13 bound
diary is suggested.
2. Keep it up to date.
3. Take the learning diary with you to all class sessions.
4. For self-learners, use the diary to track your
learning progress for all of your learning activities.
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Objectives of this session
To understand and apply these principles and
techniques (not to convince you). Ask for clarification as
needed.
Set a goal for yourself on how many principles and
techniques you plan to use by the end of this session.
Even a goal of one will help you. Put this in your learning
diary now.
Note: We will discuss only some of the slides. When you go
through the lecture on your own, view it in “Slide Show” and
follow the experiential procedures.
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Procedure
Focus on understanding.
Record questions in your learning diary that will help
you to apply the techniques or principles, then,
after you decide which ones you want to apply, try
to answer these from the readings. If not clear, ask
others for help.
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“The offering of a shilling, which appears to
us to have plain and simple meaning, is, in
reality, an argument to persuade one to do
so and so.”
- Adam Smith
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State prices in terms that are meaningful
and easy to understand (1.4.1)
Why? To develop good long-term relationships.
How can you make prices easy to remember?
Example: $2,397
Simplify:
Syllable reduction rule. Each syllable reduces recall by 20%.
The example has ten syllables.
For oral presentation, use grouping, e.g. for $2,397 becomes 23-97,
a reduction of 3 syllables, or “2-3-9-7” another reduction of 3
syllables.
Rounding: $2,400 (only two significant digits.)
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Should you follow common expectations
with respect to pricing?
For what percentage of supermarket items does the
large size cost more per ounce than the small size?
Write your prediction in your learning diary.
About 20% -- but the range across brands is from 5%
to 85% (Discussed in Persuasive Advertising p.43-44)
Is that a problem?
Does it show respect for the customer?
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Brands with % items with quantity surcharges
Predict the % of brands still in business 30 years after this study
of their use of quantity surcharges and explain why in your
learning diary. Then click for the answers.
In business 30 years later?
a) Five brands with over 60%
b) Eight brands with less than 10%
One
________
Seven
________
Note: This is a non-experimental study with a small sample
size (See Persuasive Advertising p.43-44 for evidence)
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A new pricing policy
You are a retailer. You learn about a new pricing policy
“P-plan” that you could implement at virtually no
cost and the effects on long-term sales would be
negligible.
1. Customers say they believe the P-plan is more honest.
2. It would save time and reduce confusion for customers
and retail clerks.
3. It would improve your image as a quality retailer.
Would you adopt this new pricing policy?
___ YES
____ NO
___NOT SURE
Write your answer and explanation in your learning diary.
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Use round prices (1.4.2)
This will build long-term relationships. A field experiment
by Diller and Brielmaier (1995) found:
Of customers, 66% prefer even prices, and 13% prefer
odd.
Odd prices take 1/3 time longer to think about, and
even university students are led to substantial
errors.
Round prices imply higher quality: Kmart uses odd
prices on 99% of its items while Neiman Marcus
uses it on 16%.
Can any of your company’s ads be improved?
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Evidence on odd prices
Catalogue experiments find higher sales for odd
prices (short-term effect).
Experiment in German drug stores found increase of
5% for matched stores that used round prices
compared with those that did not.
Odd prices waste a few hours per customer per year
and harm decision-making. (See Persuasive Advertising p.44-45 for
further discussion.)
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Should the Bose Wave Radio have a round price?
Write your answer and explain why in your
learning diary.
When finished, click this slide for the evidencebased answer.
Yes, Bose is a high-quality product.
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Are people aware of prices?
Question asked after a customer placed an item in a
supermarket cart: “Off the top of your head,
without checking, what is the price of the
{product name} you just chose?”
Percent correct? Write your prediction in your
learning diary, then click.
Fewer than half.
Implication for advertising?
If it is a quality product, focus on quality.
If price is your advantage, provide benchmarks.
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Show the price to be a good value against
a reference price (1.4.3.)
In 1901, the Chicago Telephone Company
advertised telephone service for 16 cents a day
(the PAD approach).
Bernbach’s burning egg: “Why not get an extension
phone in your kitchen? It costs less than an egg a
day.”
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Evidence on reference prices
Direct mail experiment to 968 households. Item with
a reference price for a “sale”
- seemed more believable, and
- purchases were 6.5% higher.
PAD increases sales for magazines by 10% to 40%
(various industry studies).
(See Persuasive Advertising p.45-47 for further evidence.)
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Volkswagen:
Mr. Jones and Mr. Krempler (60 seconds)
Show the price to be a good value against the
reference price (Principle 1.4.3.)
This ad complies with the principle.
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Charity donation case
120 subjects were asked to donate to a charity
through payroll deductions.
Half were asked to donate $0.85 per day, and 52%
donated.
The other half were asked to donate $300 for the
year. What percent donated? Write your
prediction in your learning diary and explain why,
then click for the answer.
30%
(Gourville 1998)
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If quality is not a key selling point, consider
advertising price reductions (1.4.4)
Advertise only meaningful reductions.
Ads for negligible price reductions increase sales,
but they are unethical and often illegal. (See
Persuasive Advertising p. 47-48 for discussion.)
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Consider partitioned prices when the add-on prices
seem fair and are small relative to the base
price. (1.4.5.)
Example: “$30 plus $10” instead of “$40”
Conditions for add-ons:
1) traditional (e.g., shipping or taxes)
2) based on seller’s costs (e.g., fuel charges)
3) small (and convenient)
4) clearly stated
Large add-ons can be a problem: Air New Zealand was fined
in 2006 because the add-on was considered misleading.
Does your company (your ad) violate this principle?
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Going to the football game on Saturday?
Mr. A bought his ticket a year ago.
Mr. B bought his ticket on Friday before the game (for the
same price).
There is a snowstorm on the game day.
Who is most likely to go:
___ Mr. A or ___ Mr. B?
Write your prediction in your diary and
explain why.
Then see the next slide.
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Evidence on linking payment to consumption
Mr. B, because the payment is more closely linked to the
consumption. Because his purchase was recent, the cost
looms larger in his mind (Thaler 1980 in Persuasive Advertising p
49).
In a lab experiment, 80 subjects were asked to imagine that
they had pre-purchased four days’ worth of lift tickets at
a ski resort. One group had a four-day pass and the other
had four one-day passes. The group that had the
unbundled tickets were more likely to say they would go
skiing despite bad conditions (Soman & Gourville 2001).
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Debit or credit card?
Debit cards usually do not offer frequent flyer
points, and they remove money from your
account when purchases are made, rather than at
the end of the month as with credit cards.
So why is it that in Europe, in 2006, consumers
spent more than three times as much on Visa
Debit Cards as on Visa Credit Cards?
People prefer to avoid bad part -- paying. Credit
cards are less painful than cash, but you face a
debt. Not so with debit cards. So, what to do. . .
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State that the price can be prepaid if it might
reduce uncertainty for customers or enhance
anticipation. (1.4.8)
Controversial among economists however, typical practice, a
field study, and a laboratory study support this principle.
People often prefer to remove uncertainty about the price.
So they pay much more for flat fees for internet, phone, and
health clubs than had they paid per use.
One review was titled: “Paying Too Much and Being Happy
About It.”
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Evidence on reducing uncertainty (1.4.8)
Here is an example of a lab experiment:
Which message would get the highest response?
___a) a $1,600 premium with a promise of a $600 rebate
for safe driving, or
___b) an otherwise equivalent policy for $1,000 with the
possibility of having to pay up to $600 for an accident?
Write your predictions in your learning diary, then click
for the answer.
68% said they would purchase “a,” while only 44% said
they would purchase “b.” (See Persuasive Advertising p. 51 for
evidence.)
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Using high costs to justify high prices
So how would you advertise expensive men’s shirts?
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Using high costs to justify high prices
Suppose you received an ad for an attractive shirt, stating that it took 8.5
hours to make that shirt by hand. Assuming identical pricing, would you
be more likely to purchase this shirt or an identical looking shirt in an ad
stating, “Thanks to modern technology, this shirt was made in 37
minutes?”
“The value of a commodity is the amount of labor it has
within it.”
- Karl Marx
Use high costs to justify high prices (1.4.9)
Supported by 7 experimental studies
How would you advertise mens’ shirts?
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1.4.9. – Use high costs to justify high prices
The ad claimed
that the shirts
were made by
“dedicated
craftsmen, who
have been at it
man and boy for
one hundred
and fifteen
years.”
Sales soared.
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When quality is high, do not emphasize price
(1.4.10.)
Evidence-based findings:
1) An increase in price advertising leads customers
to focus on prices
2) Price advertising leads to lower prices.
3) Non-price advertising leads customers to show
less concern about prices – and presumably
more about quality.
Apply this to sales of an expensive brand of automobiles.
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1.4.10 When quality is high, do not emphasize price- Volvo auto bargains –violates
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Use high prices to connote high quality (1.4.11)
Conditions: Especially relevant when trying to impress others
with high quality and where quality is hard to judge even
after use.
Examples:
Universities: Bennington, MIT, Harvard
Johnson’s car wax had many benefits. Tests on different
prices found that the claims were not believed when the
price was low, so they went to market at a higher price.
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1.4.11 – Use high prices to connote high
quality – Stella Artois (beer)- supports
Stella Artois advertises, “Reassuringly expensive” and “Perfection has its price”
to convey high quality.
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1.4.11 - Use high prices to connote high quality
– Wild Turkey - Complies
This principle is relevant
when quality is
important yet hard to
judge even after product
use.
- Discussed in Persuasive
Advertising, p. 53
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For inexpensive products, state price discounts
as percentage saved; for expensive products,
state price discounts as money saved – or both
(1.4.12).
To be safe, advertise percentage savings and the
dollar savings. Example: Amazon.com provides
the list price, sale price, and total savings in dollar
and percentage terms.
Laboratory experiment found intentions to buy
higher when price savings was presented in many
ways (Della Brita, et al 1981).
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Mouthwash case
You are introducing a new brand of mouthwash in a
discount store. Would you advertise
______ a low introductory price or
______ sell it at its listed price?
Why? Write your thoughts in your learning diary.
When people made their original purchases of this
credence product at stores with the low price, they
might conclude that they purchased it only for the
price, not because it was good quality. (Doob 1969. See
Persuasive Advertising p. 55-56 for additional evidence.)
Minimize price information for new products (1.4.13.)
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Minimize price information for new products
Example from Hyundai complies with the principle.
Does your company follow this principle?
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Wristwatch case
Which offer would have the highest sales, given that
prices are the same:
__ a) a wristwatch, or
__ b) the same wristwatch that also shows time on
both East Coast and West Coast of the U.S. ?
Why? Write write your predictions and explanations in
your learning diary, then click.
Intentions for this high-involvement product were
46% for “a” and “30% for “b.”
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Consider bundling prices of features
or complementary products or services if they
are desirable to nearly all customers. (1.4.14)
Intentions to purchase 17% higher in lab experiments
on durable goods.
Car purchase intentions up 10% in a field experiment
when prices were bundled. (See Persuasive Advertising p. 57
for evidence.)
Suggest an application . . For your project?
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Carpet cleaning case
Sears Carpet Cleaning
$14 a room
2 rooms: $28!
6 rooms: only $84!
Persuasive ad?
Multi-unit pricing raised purchase amounts by 32% over
baseline pricing (Wansink, Kent and Hoch’s four 1998 field
experiments of point-of-purchase ads in supermarkets).
This works for low-involvement goods, but carpet cleaning
is high-involvement purchase.
Advertise multi-unit purchases for frequently purchased lowinvolvement products if it is also in the consumers’ interest
(1.4.15)
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Ideas for Applications
To learn the principles, start to design an ad for
your organization using the pricing principles in the
checklist for creating ads.
If you are not currently working for an organization,
pick something to advertise, perhaps a charity.
If you are in a class, design an ad for yourself as the
owner of small advertising agency (commonly
called a “house ad”).
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Other ideas for Application
1. Analyze an ad from your organization.
2. Support your decisions by reference to the
original research studies.
3. Use the end-of-chapter checklist.
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Techniques
In your diary, describe the techniques that you were
able to use for your pricing advertisement and rate your
success (e.g., creativity, objective setting)
In your diary, write how you would use focus groups to
test your price-focused ads.
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Follow-up: Complete prior to next session
1. ___ Go through this lecture on your own (It is on
the Educational Materials page)
2.___Study Persuasive Advertising pages 41-58 and
record your reading time in your learning diary.
Highlight techniques and principles that you want to
apply in yellow.
3.___ Complete the End of Chapter Questions for
“Information” and check your answers against PA.
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Advice on learning
One study found that fewer than 10% of students were
successful in applying new knowledge.
• This went to 20% if they actively applied what they
were taught during a class session.
• It went to 90% when they worked with a learning
partner and coached each other.
Select techniques to apply
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