Price first or product first? A Neuroscience perspective
Imagine you walk in a department store, you see a sweater you like, and then you see the price tag with 49.99$ written on it. Now suppose you entered the store and the first thing you saw was a big sign that said 49.99$, then you browsed the different options until you found the sweater that fits your taste. Will you take the same kind of choice?
When it comes to designing nearly any retail experience, the availability and timing of price information is crucial for building promotional displays, store design, and particularly for e-commerce stores online. Showing the product first can promote evaluations based on its attractiveness and desirability, while presenting the price first could place the focus on the product’s (monetary) worth. However, with explicit tests alone is difficult to disentangle liking and value perceptions since they are biased by the previous attitudes of people.
To understand these price primacy effects, researchers from the Harvard Business School and the Stanford University gave a group of people 40$ to spend on products from inside a brain scan, showing either the price tag first, or the product first. Then they looked particularly at two brain areas: The Medial Prefrontal Cortex (MPFC) involved in willingness-to-pay and value calculations; and the Nucleus Accumbens (NAcc), whose activity has been linked to reward anticipation and relates to preference for an item. The results showed that, when the product comes first, activity in these areas decreased for unwanted products, representing a decreased interest. However, activity remained constant when the price was shown first, suggesting that they simply excluded the less desirable items, rather than actively devaluing them.
The different conditions did not affect the participants’ liking of the products. However, it did have an effect on the way they were making the decision: Showing the price first encouraged them think about the product’s worth.
Price primacy shifted participants’ purchasing question from “Do I like it?” towards “Is it worth it?”
In a second study, they divided the products into two categories: utilitarian vs. frivolous products. Utilitarian products would be those with a practical or functional use (like toilet paper, for example). Frivolous would be those guilty pleasures that are more experiential, hedonic or that provide status (a bottle of expensive wine, for example).
It is easier for us to estimate the value of products with a recognized utility. For this type of products, price primacy played a bigger role in determining purchase. In other words, showing the price first could increase purchases of utilitarian products, since people evaluate them based on their worth merits.
These findings represent several implications for marketers:
- In contrast to the “pain of paying” theory, the present results suggest that even if price evokes that pain first, this does not necessarily carry over to the decision, so it does not prevent product liking or product purchases.
- If the firm can offer a good bargain price for an utilitarian product, the current findings recommend to make the price salient early on. Increasing the weight that this information will have on the purchase decision.
- For some products, it is just difficult to calculate their value, especially for non-experts. Price primacy will then influence the value we assign to the product, and the consumption experience. For example, a very good wine with a cheap price might receive less quality ratings simply because the low price imbues low value to it.
Even though their liking of the products was the same, showing the price first made participants more critical about the products’ value, as if they were asking themselves “is it worth this money?”. When it is actually worth the money, or it is a bargain, price primacy is the winner. However, a potential caveat from highlighting a bargain price first is that it may decrease the willingness-to-pay for that product, and it may decrease the evaluations of its worth and its quality.
In settings where the sequencing of information can be chosen by the firm, A/B testing has proven beneficial to optimize price strategies and information sequencing. But this article is another example of the broader understanding that can be achieved with applied neuroscience. These methods allow firms to understand why and when a price strategy should be implemented, and most crucially, they allow to predict the potential outcomes when consumers are not able to report them.
Source: Uma R. Karmarkar, Baba Shiv, and Brian Knutson (2015) Cost Conscious? The Neural and Behavioral Impact of Price Primacy on Decision Making. Journal of Marketing Research: August 2015, Vol. 52, No. 4, pp. 467-481.