Price-Value Bias

In a nutshell, it’s all based on the fact that our preferences for products can change over time, resulting in what’s called ‘buyer’s remorse’. Research (Liberman and Trope 1998) suggests that when we require a product for more immediate needs, we opt for one that’s highly-convenient and simple, but when it’s required for the distant future, we tend to choose products high in functionality. However, this means that when we buy that simpler product now, we later experience a desire for one that’s more fully-featured, which causes purchase regret and dissatisfaction.

Fundamentally, this is all because we tend to think that greater functionality means greater value (Yeung and Soman 2007). Also, price prompts us to think about a product’s value and about whether a product is “money’s worth” (Karmakar, 2010).

One of the JCR studies is a great example of this. Here, students were asked to obtain a photo-editing software to complete an assignment that was due either in a week, or in three months. Students were asked to choose between software that was either feature-rich and complicated (Photoshop) or simpler and quicker to get started with (e.g. iPhoto). And some were told they would be given the product for free, while the rest were told they’d need to stump up the cash. Curiously, for those students for whom the products were free, they overwhelmingly chose the ‘convenient’ option. However when the price was added, they preferred the complex software, even if their submission was only a week away! What madness! Why??

Even more crazy was that for those who had to pay, some were told both products cost $10, while others were told they cost $200. However, despite this massive variation in price, it didn’t affect the results, so the bias kicks in even for a price as low as $10.

Therefore, marketers can use price to influence consumers to choose functional products that are required to be used in the near future. This can make consumer desire consistent over time and increase satisfaction with the purchase.

Interestingly, one of the follow-up studies in this paper found that when participants are made to believe that price is an indicator of a product’s ease of use (as opposed to its level of functionality), they tended to choose the simpler, easier product.

All of these studies show us that consumers’ belief in what brings them value may be integral to product sales.

Takeaways for Decision-Makers

1. ‍If your product’s price falls into a similar range with competitors, your customers will naturally start to consider other aspects of the product. However, this research shows that the way you communicate your product’s price could be the key to nudging consumers into choosing your product and being happier in the long run.
2. ‍“Same price, more features”. For instance, if your product’s got more features than your competitor’s but sits around the same price range, use the similar price as the anchor and contrast your superior functionality. You could say something like: “Same price as x, but with all these extra features!” This will infer greater value and give you a marketing edge.
3. ‍“Same features, lower price”. If your product has a similar level of functionality as a competitor, advertising discounts and highlighting price relative to functionality in your marketing message can influence consumers to choose your product over others. Say something like: “Same great features as y, but 25% cheaper”. This is easy-to-digest information for consumers and simplifies their selection process (albeit in your favour).
4. ‍“Higher features, higher price, but designed better”. The secondary insight that price can be manipulated to signal convenience shows the importance of considering the quality of your product’s User Interface and User Experience (UI/UX). A product’s more advanced features may prove irrelevant if the product is difficult to use. Therefore it is unsurprising that consumers are willing to pay a premium for products that are easy to use and save them time (Marmorstein et al. 1992). For instance, Apple’s software products are not just high in functionality, but their easy-to-use interface gives consumers ease-of-use as well.