The way a price is advertised and communicated to customers has just as much power as the price alone for consumers considering whether to make a purchase, according to a University of Virginia researcher.
People don鈥檛 usually treat price increases and decreases the same way, said Derick Davis, an associate professor of commerce at the University of Virginia鈥檚 McIntire School.
Something such as a 10% discount might not be enough to get someone to buy something they weren鈥檛 planning to buy, he said, but a larger one could lead a person to 鈥渇eel the need to make that purchase, because it鈥檚 such a good deal.鈥�
But price hikes, he said, are often interpreted as more extreme. A small increase, such as a 5% bump in eggs or gas 鈥渨as really painful, and so that changes how people are thinking about it,鈥� Davis said.
As a result of that, in times of economic uncertainty, Davis said companies might consider new ways to frame prices and deals. Historically, he said, when prices go up, companies turn to shrinkflation. Either package sizes or the amount that鈥檚 in a package go down over time, but the price usually remains the same.
鈥淭hat鈥檚 worked up to a point, but I was reading recent reports of people opening fun-sized candies and there鈥檚 only one or two in there when there used to be 10. So you鈥檝e kind of reached the limit of shrinking package size to keep the price stable,鈥� Davis said.
Usually, shoppers may not notice if a 64-ounce carton of milk is actually 58 or 59 ounces, but they may run out faster, prompting them to pick up on the tactic, Davis said.
Sometimes, he said, companies will introduce new brands that have a lower price, with the hope of getting the customer back.
鈥淭here鈥檚 a lot of levers that they can pull to try to mitigate price increases,鈥� Davis said.
When prices go up, Davis said shoppers don鈥檛 want to buy things, switch to different stores or look for brands that are cheaper.
Conversely, he said, 鈥渋f people are more forward-looking and thinking about tariffs and that prices will only increase in the future, they might be moving some purchases forward and purchasing more or certain things that maybe they were going to postpone to the end of the year.鈥�
Reference pricing also plays a role in whether someone buys something, Davis said. Recalling how much something used to cost a long time ago might make it seem more expensive in the current moment.
鈥淲e really don’t like to change those reference prices, or it’s really difficult to do in our memory,鈥� Davis said. 鈥淲e’re not very good at updating it.鈥�
Most people don鈥檛 think about spending money in an objective way, Davis said, which also influences spending habits.
鈥淚f it’s $5 for eggs, that’s really painful to pay,鈥� Davis said. 鈥淚f it’s $5 for something fun, that feels completely different. And we have these other sort of mental accounts that we’re using to think about things.鈥�
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