Ideas for Leaders #338

How Price, Time and Functionality Affect Customers' Choices

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Key Concept

New research shows that when purchases are time-sensitive — buying a camera the day before leaving for vacation, for example — consumers tend to look for convenient, easier-to-use products. But in the long term, consumers are more interested in desirable product features. According to the research, reminding consumers of a product’s price will help them focus, even in the short term, on what they truly value: functionality over convenience.

Idea Summary

Consumers often have a choice between products that are convenient or easy- to-use and products that offer greater functionality but are less convenient. When making a purchase that involves a longer time frame, consumers are likely to choose functionality. They are willing, for example, to take the time to learn the sophisticated software that will let them digitize the old family albums. Under any kind of time pressure, however, the story is different. Consumers are likely to seek out convenience in their products. However, consumers tend to value functionality over convenience in the long run, which can lead to dissatisfaction for those who in the time crunch chose the convenient but less functional product. This long-term dissatisfaction can have an impact as consumers associate the less-than-satisfactory purchase with the manufacturer or retailer, and will be less inclined to return to that brand name or store.

Through a series of experiments that manipulated the participants’ exposure to price, Kelly Kiyeon Lee of the Washington University’s Olin Business School and Min Zhao of the University of Toronto’s Rotman School of Management were able to show that the awareness of price makes a difference. When participants knew the price of the products they were choosing, they were more likely to choose the products with greater functionality — even in the short term. When the participants were not given the price, however, they tended in the short term to choose the more convenient products.

The preference for greater functionality was apparent even when participants were just thinking about money. In one experiment, participants chose the more functional product after being asked to count out $1 bills — even though they were never shown the actual price of the product.

Business Application

While the awareness of price can be manipulated in controlled experiments, there are ways to increase the awareness of price in real world situations as well.

For example, once an annual gym membership fee is paid, the price fades away. If despite the best of New Year’s intentions, the new member barely uses the gym and eventually comes to regret having joined, the renewal decision is: no thanks. To avoid this situation, the researchers suggest that the gym — and other membership types of businesses — send monthly reminders of the price that the person paid. Counterintuitively, these reminders will give consumers the opportunity to remember the value that they perceived in a gym membership, and thus spark them to use the gym more.

The time frame of the purchase plays a role in the effectiveness of the price reminders. Since customers thinking long-term will be focused on functionality to begin with, price reminders are unnecessary. They will choose the products with greater functionality. But, customers thinking short-term may go for convenience, assuming that there is not great value in the less convenient products. Inevitably, they regret the decision with time. In this case, the manufacturer or retailer should emphasize the price that consumers need to pay so that consumers stick to what they truly prefer in the long run: good value for their money.

The bottom line is that price awareness will focus consumers on the product with the best value; thus, companies should take (or create) any opportunities they can to remind the consumer of the price they paid — or to emphasize the price-value equation of the products they are considering.

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Idea conceived

  • January 2014

Idea posted

  • March 2014

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