September 15

[Nugget #23] Pricing in Times of Crisis (part 4): Smarter Discounts for Smarter Shoppers

The third driver of price consciousness during recessions: Need to feel as 'smart shopper'.

During economic downturns, three reasons explain why customers are more sensitive towards prices: (1) they worry about their financial future [Nugget #21], (2) they feel guilty when spending money [Nugget #22], and (3) they want to perceive themselves as a 'smart shopper'. This Nugget is on the last factor.

Academic research found that customers develop a pride-like feeling when they perceive themselves as 'smart shoppers' [1]. One definition of 'smart shopping' is "a tendency for consumers to invest considerable time and effort in seeking and utilizing promotion-related information to achieve price savings" [2, p. 504]. We observe a strong inclination to 'smart shopping' behavior in these turbulent times: the consulting company McKinsey found in a recent survey that 40% of US customers look for ways to save money [3].

Does any price reduction make your customers feel 'smart'?

To develop pride, customers need to feel responsible for getting the discount. To feel responsible (academic speech: "causal attribution"), three conditions must be met [1]:

  1. The locus of causality must be internal, which means that the cause for realizing price savings are internal factors instead of external.
  2. The cause must be controllable by the customer instead of being uncontrolled by anybody.
  3. The cause must be constant and stable over time instead of flexible and unstable.  

For example, person A compares all circulars she can get a hand on, checks various stores, and plans her shopping trips accordingly to secure the highest savings possible. Person B rarely shops but does so to buy a birthday gift for a friend. When entering a store, he recognizes that the retailer runs a promotion on his favorite apparel brand. He buys a t-shirt for himself at a discount. In this example, person A might attribute price savings much more likely to herself than person B.

How to create promotions that make customers feel as a 'smart shopper'?

Studies found that if customers need to exert some effort to gain lower prices, they are more likely to perceive those price savings as an achievement and regard themselves as 'smart shoppers' [4]. 

The one tactic that repeatedly outperformed other promotional techniques is coupons. The task of clipping coupons makes customers attribute savings to themselves.

At first glance, it appears counterintuitive that less easily accessible price reductions should be better from a customer perspective. However, "giving customers something to do" is more effective than promotional techniques that come with less friction, such as straight price discounts [5] or two-for-one promotions [6].

When clipping coupons

  • customers consider the locus of causality as internal (who else but them clips the coupons?), 
  • customers have full control over the discount (the discount is not at the mercy of a third person like the shop owner deciding whether to give a rebate), and
  • customers can rely on the stability and constant availability of this discount as coupons will be around all the time (unlike special promotions due to the anniversaries of the retailer).

Hence, researchers conclude: "In sum, highly sale prone consumers appear to be largely concerned with the outcome of saving money, and highly coupon prone consumers seem more likely to enjoy and value the process of doing so" [4, p. 171].

Customers' need to feel responsible for a price reduction might explain why a recent market research study on consumers in eight different countries found that 36% of consumers are actively looking for sale items (through coupons, promotions and/ or discounts), and 30% of participants explicitly seek out coupons [7].

The bottom line

Impose a little effort onto your customers to access a discount so that they feel responsible for getting the discount and develop pride-like feelings and 'smart shopper' perceptions.

This Pricing Nugget is based on the new whitepaper "Pricing Advice in Times of Crisis". It takes the theory from the academic research summarized in the whitepaper and reflects about it in light of actual pricing tactics applied in the current crisis. 

References

[1] Schindler, R. M. (1998). Consequences of perceiving oneself as responsible for obtaining a discount: Evidence for smart‐shopper feelings. Journal of Consumer Psychology7(4), 371-392.
[2] Mano, H., & Elliot, M. T. (1997). Smart shopping: The origins and consequences of price savings. Advances in Consumer Research, 24, 504–510.
[3] McKinsey (2020). US consumer sentiment during the coronavirus crisis  https://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/survey-us-consumer-sentiment-during-the-coronavirus-crisis, last time accessed on September 14th, 2020. (US survey data collected August 19–23, 2020)
[4] Garretson, J. A., & Burton, S. (2003). Highly coupon and sale prone consumer: benefits beyond price savings. Journal of Advertising Research43(2), 162-172.
[5] Schindler, R. M. (1992). A coupon is more than a low price: evidence from a shopping‐simulation study. Psychology & Marketing9(6), 431-451.
[6] Laroche, M., Pons, F., Zgolli, N., Cervellon, M. C., & Kim, C. (2003). A model of consumer response to two retail sales promotion techniques. Journal of Business Research56(7), 513-522.
[7] Momentum (2020). COVID-19 Shopper and Retail Pulse Study. https://pathtopurchaseiq.com/study-shows-most-shoppers-wont-immediately-return-normal, last time accessed on September 14th, 2020. (Survey data from 8 markets across UK, US, Canada, Europe, Middle East & Asia).


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[NEW] whitepaper "Pricing Advice in Times of Crisis"

Digest of 50+ studies explains how customers' behavior change and how companies should adjust their pricing during economic downturns.