Summary
- Humans thrive as a visual species with up to 85 percent of sensory input impacting cognitive decisions originating from sight.
- In walking around a store, people can quickly and efficiently visually scan prices, compare, and make decisions with relative ease instead of stopping and asking a question as to the price of every single item.
Meandering through the labyrinth of Nairobi furniture retailers
along Mombasa Road, one experiences eye-popping vivid contrasts of
designs, styles, colours, fabrics, and wood.
Enter one
store and find well-organised rows of furniture options with well-placed
visible price tags. Then spend hours pondering price combinations of
furniture parings.
Arrive in a different store and
unsettlingly discover no marked prices on any merchandise. A
receptionist directs patrons to inquire from roaming sales agents if
desirous of price details on any item. It could take hours just to gain
an understanding of what all the prices are per furniture category that
interests a buyer.
Then, all those prices must lodge in
a shopper’s short-term memory. Which style of price posting works
better to boost profits of retailers?
As we commence
our long road to coronavirus economic recovery, many Kenyans now venture
out into shops, malls, and stores, increasing spending consumption in
this third quarter over the second calendar quarter.
In venturing out to shop and noticing throngs more consumers
also out and about compared to months ago, we face different types of
stores when purchasing big-ticket items. Some stores post their prices
on items and some instead encourage buyers to ask sales agents for
prices.
Extensive research exists on the effectiveness of posting prices on merchandise.
Scientists
Laurent Muller and Bernard Ruffieux show how consumers logically
ascertain their own price perceptions of products against the posted
price tags on merchandise to uncover their willingness to pay.
Business
researcher Guofang Huang uncovers how for larger priced merchandise,
the dominant players in an industry gain profit advantage from posting
prices and then not allowing haggling and negotiating, whereby smaller
retailers can gain profit share by posting prices then encouraging
negotiations.
Vivian Own and Joseph Wang delineate how
often people prefer the higher posted priced good or service because
they perceive it with better quality even if the belief is unfounded in
reality.
VISIBLE TAG
Retailers
usually post their prices in four different categories. First, all item
prices are marked, visible, and fixed. Second, all item prices are
marked and visible, but negotiating and haggling for lower prices than
the visible tag is tolerated. Third, all item prices are also marked and
visible, but negotiating is actively encouraged. Fourth, no prices are
posted and no list or menu of items and prices are shared, thus creating
an inquiry and negotiation on every product.
Store
owners who opt for the fourth option generally believe that their
profits trend higher by requiring sales agent interactions and
negotiating as opposed to posting prices. They expect their agents to
size up potential customers and maximise return.
However,
psychologist Utpal Dholakia explains how negotiating takes extra effort
on the part of consumers and many will feel exhausted and not make the
effort.
VISUAL SPECIES
Humans
thrive as a visual species with up to 85 percent of sensory input
impacting cognitive decisions originating from sight. In walking around a
store, people can quickly and efficiently visually scan prices,
compare, and make decisions with relative ease instead of stopping and
asking a question as to the price of every single item.
Further,
consumers question the fairness of the price quotes they receive from
sales agents in stores with no posted prices. Is one obtaining a fair
deal? What is the lowest price one could have gone down to? Is how one
dresses affecting the price the sales agent gives?
The doubt mixed with extra effort to inquire and negotiate on every item significantly reduces consumer purchasing desires.
Business
owners must decide. Posting prices in retail stores can increase the
length of time a shopper takes and heighten purchase intentions.
Meanwhile,
no posted prices and all haggling may reduce the quantity of sales but
increase the profit margin on the sales that do occur.
Dr Scott may be reached on scott@ScottProfessor.com or on Twitter: @ScottProfessor
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