For every 1% improvement in pricing, research has shown that companies can receive up to an 11% increase in profit. With stats like these, it’s understandable why so much effort is spent on refining pricing strategies.
Directly comparing prices with those of competitors to position your product in a favorable light, or comparative pricing, is a favorite technique of many companies to try to attract more customers. However, while success from this method is possible, simply showing that your product is cheaper is not always as effective as many think and can even have an adverse effect on sales.
When Comparative Pricing Can Be Detrimental
A study by professors at Stanford University explicitly demonstrated how comparative pricing does not necessarily result in more revenue. To test the effectiveness of comparative pricing, the researchers set up eBay auctions of top-selling CDs. If you are interested in the methodology used in this study, it can be found here.
The results showed that when explicitly asked to compare seemingly identical products that have different prices, shoppers became more anxious and more risk-averse. Customers placed fewer bids, they took longer to bid initially and were less likely to participate in multiple auctions at the same time.
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