Last week, we discussed that gift buyers become more loyal to the brand they present as a gift (see Nugget #11: Gift givers are a gift.).
Gift buyers become more loyal – but what about their price sensitivity?
Imagine you are buying a gift for your friend – let us say new headphones.
You are not sure what your friend actually wants and what her preferences are. You enter a retail store and you find five product options at different price points: $13.00, $15.50, $18.00, $20.50, and $23.00 (this scenario is drawn from a real experiment as cited below: participants were students with student budgets. Bear with me and remember the good-old days in university).
You have no information about your friend’s preferences. How much would you spend on the headphones?
Now, imagine you know for sure your friend has expressed a preference for the ‘$18.00’ option. How much would you spend in this case?
Lastly, imagine you are buying headphones for personal use. What price are you willing to pay?
Wang & van der Lans (2018) found (1) that customers have a lower price sensitivity (i.e. are willing to pay higher prices) when buying gifts for others instead of buying the same product for themselves and (2) that higher levels of uncertainty about the receivers’ preferences lower their price sensitivity.
An experiment with pairs of friends showed that the gift giver would pay on average about 6% more on headphones when purchasing those as a gift and this difference would depend on the level of uncertainty of the friend’s preferences.
The underlying mechanism of this effect is that friends avoid looking cheap when giving gifts (at least when friends do not know that the gift recipients actually wants). I can fully relate.
What does this mean for you as a retailer? Frame your products as gifts or solicit information about your customers who identify themselves as gift buyers to help them find gifts that do not make them look cheap.
What does this mean for you as a gift receiver? Leave some uncertainty on the side of your friends when they ask you what do you wish for yourself.
What does this mean for you as a gift buyer? Ask your friend what she wishes or check her online wishlists – ideally it is something with limited degrees of freedom. Hopefully a book.
Wang, Sherry Shi, and Ralf van der Lans (2018), “Modeling gift choice: the effect of uncertainty on price sensitivity,” Journal of Marketing Research, 55 (August 2018), 524-540.