Imagine you’re abroad and you fancy a coffee. You’re in a small town that none of the big chains have reached. But there are three independents, and they all look pretty much the same in terms of their cleanliness, their décor, their general ambience and so on. But the price of your cappuccino is very different in each, its
80 cents in Coffee House A
1,80 Euro in Coffee House B
2,80 Euros in Coffee House C
Which do you go for? So perhaps the third one is a bit expensive and you went for the 1,80 one. But, I bet you didn’t pick the 80 cents one, right? A very low price makes you suspicious. Can they really be doing a good cappuccino for 80 cents? And if so, what else is wrong with the place that they have to charge such low prices?
Using price as a marker of quality especially when you’ve got nothing else to go on is a very common finding in psychology. And in fact, some studies have shown that people do this even when it obviously makes no sense at all. When a product is discounted – even for completely innocuous reasons – we just can’t shake the feeling that it is somehow worse. One study found that participants who had paid $1.89 for an energy drink showed a greater mental boost on a set of puzzles than participants who had paid just 89c for the drink, even though they were given the brand name (SoBe Adrenaline Rush) and told that the discount was possible because the drinks had been bought using the university’s institutional discount (and not, for example, because the drink is a below-par product that the manufacturer is trying to offload). In another study, the same researchers gave people placebo pills that they told them were painkillers. And people rated them as more effective when they were told that the researchers had paid full price – $2.50 – than when they were told they’d bought them at a large discount – just 10c each. But again, they were the same pills in each case, and participants were told the same brand. All that made a difference was the price.
So, the lesson for your site is that even if you’re offering something that is the same or very similar to your competitors, it’s not always a good strategy to simply try to undercut them. In fact, if you’re offering something very similar – or even identical – for a much lower price, then people are going to be suspicious (for example, if you see a phone for sale on a website much cheaper than the going rate across all other sites, you’ll be immediately suspicious it’s a fake, or at least a grey import). In fact, if you’re offering things that are difficult to compare – for example services rather than products that are identical across different suppliers – there may even be some mileage in charging significantly more than your competitors, and pitching yourself as the high-end option. Because remember, the studies show that when we have little else to go on, people very often use price as a marker of quality.