Why Low Prices Can Scare Off Customers

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* While everyone loves a good bargain, low prices can often have a negative effect on how your product is viewed.

* Instead of getting a product for a great deal, customers often believe that you get what you pay for.

* Though everyday low-pricing strategies can work for some businesses, it is not always a great idea for some lines of business.

Despite all the hype surrounding great deals, it turns out that cheaper isn’t always better: Research suggests that low prices can backfire for retailers because consumers sometimes see low prices as a sign of a low-quality product. 

However, the researchers also found that consumers see low prices simply as good deals. Shoppers’ perception of a low price depends on what they think about when making the decision to buy a product.

“The bottom line of our research is that people can hold two opposing beliefs about a product,” said Steve Posavac, the E. Bronson Ingram professor in marketing at Vanderbilt University’s Owen Graduate School of Management and a co-author of the study. “In the case of price, most people simultaneously believe that low prices mean good value and that low prices mean low quality. But these two beliefs are not equally present in consumers’ minds all the time.

“Consumers rarely have complete information, and [they] use various strategies to fill the gaps in their knowledge as they consider and choose products,” Posavac said. “One of these strategies involves using naive theories: informal, commonsense explanations that consumers use to make sense of their environment.”

Companies can help to influence how consumers feel about low prices by improving their marketing strategies. In the research, when companies focused on the quality of products when marketing them, consumers looked more favorably upon more-expensive products. However, when companies focused on value, consumers rated cheap products more favorably.

“A company may implement an everyday low-pricing strategy that manages to reduce brand value and alienate consumers if many of them believe that low prices equal low quality,” Posavac said. “Over the years, JCPenney customers had become so used to sales that they no longer believed they were getting a good deal. [Companies] design a strategy by assuming that a certain naive theory is going to drive consumer evaluation and choice when, in fact, several naive theories are available to the consumer.”

The research was published in the Journal of Consumer Research.

Avoiding the “low-price, low-quality” perception

Of course, the price of a product doesn’t always reflect its quality. For example, currency can play a role in the pricing of products in different countries. In some parts of the world, the U.S. dollar goes very far. In another country, you could potentially buy a nice four-course meal for a third of the price that you would in the U.S. However, does that mean the quality of the food is bad? Not necessarily.

Another reason a high-quality product could be priced low relates to supply and demand. If a particular product is not in high demand, the price could go down to entice people to buy it. On the other hand, if there is a surplus of a product, the company might drop the price to get rid of excess products. This does not mean the product is faulty or not useful.

For companies to control the perception of their prices, marketing directors must be able to present their brand the right way. Building a brand is a matter of giving consumers words to think of when their company comes to mind. Ideally, if your company uses an everyday low-pricing model, your customers will not think about how cheap your product is or how low quality it is; instead, they will think about how they get value from your product.


By Business News Daily Editor

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