By Advanced Commerce

Here at Advanced Commerce we surveyed over 60 major retailers, from the likes of Vivienne Westwood and Boohoo Group, to Tescos, Dell and Screwfix. Our goal? To find out how to help businesses to optimise their sales.

Around 75% of these retailers reported their AOVs (average order values) were higher online than in store.

We know that part of this is due to customers buying, for example, several pieces of clothing with the plan to return all but one item. Indeed our survey also found that return rates are higher online than in store. But overall, online spending is still stronger across the board.

After all, it’s often easier and more convenient to stay at home to shop. Fast internet access is becoming the norm, and thanks to clever personalisation tools, websites are getting better at recommending products that are tailored to each customer’s preferences.

Clearly we’ve reached a point where the importance of the digital world can’t be overestimated. And yet many businesses fail to maximise on this. While it may understandably take time to perfect a website’s design, there’s one big mistake that cannot be ignored or sidelined: ineffective price anchoring.

What is price anchoring?

When most people go shopping, the first price they see for a product tends to be the one that sets the benchmark. For example, if the first pair of jeans is priced at £100, subsequent pairs priced at £80 will seem relatively inexpensive. Price anchoring is a strategy that retailers use to influence a shopper’s concept of value – and to then guide their purchasing decisions. If your online store is showing your lower price items first, customers will naturally anchor to that lower price and therefore feel the higher priced items don’t offer good value inhibiting the likelihood of a purchase and, if a purchase still happens, the value of that purchase.

You can use this to your advantage though by taking control of your product display sequencing and show higher price items first, even if that is just the very first item, or top row of items in your store. Then customers will naturally anchor to the higher price, and any item ‘lower’ than the initial high priced anchor will be perceived as offering great value and therefore increase the likelihood of that customer purchasing, and spending more.

Man holding smartphone that advertises mobile shopping clothes website to order via internet.

When done well it can both increase your AOVs and help shoppers to generally associate your brand with value for money.

What are some approaches?

Crossing out prices is a common approach, giving shoppers a simple visual to guide their concept of value. You might have initially sold, for instance, a bottle of perfume for £35 and then later dropped the price to £30. By showing the former crossed out and the latter beneath, you’ll be suggesting that the consumer will enjoy £5 more value than before. (When using this approach, make sure to comply with laws around trading standards with regards to not misleading your customers).

Another approach is known as comparative package pricing. Shoppers are shown, say, three different pricing options – a premium option, a standard option and a budget option. The theory is that most people have an aversion to extremes; they will avoid either end of the scale in favour of the middle, “safe” option. Retailers can make use of this psychological tendency and “bracket” their ideal price point with a higher and lower alternative. Although some shoppers may choose the alternatives, most will opt for the target price.

A third option is to compare prices with those of competitors. In this way the competitors’ prices act as the anchors that make your own prices seem more appealing. So long as the competitors’ prices are kept up-to-date this can be an effective strategy.

While the above examples revolve around showing a relatively high price first, this does not have to be the case. A not-for-profit cafe serving meals, for example, may not state any prices but, instead, ask the customer to pay what they can afford or feel is the right amount for the food. Without any price anchoring, the customer would have the freedom to decide on their own price. However, this can actually be off-putting – most people like an indication of what is the right, appropriate value to guide their decision. Such cafes have found that giving a suggested price for a meal therefore leads to happier customers who, in fact, tend to pay above the suggested amount.

When can price anchoring go wrong?

Effective price anchoring relies on understanding the differing psychologies of your customers.

For instance, those who are savvy and already have a good knowledge of the standard prices for your products may not be swayed. They might even see your anchoring as being dishonest and think less of your brand.

There is also a significant difference in the way that a bargain-hunter shops compared to other customers. The former may jump between different websites to seek out the cheapest price for a particular product. In this case displaying your sales items on the first page would be a wise strategy. However, in the case of other customers who take longer on a website – and who perceive the rest of your products as relatively expensive – this may well lead to them deciding that your brand is generally bad value for money.

It’s therefore worth knowing enough about your customers and how they shop, then showing each of them a personalised version of your website. If this sounds like an overwhelming task, consider that it can be as simple as looking at how each customer finds your website in the first place. If, for example, they follow a link on an advert for “cheap dresses”, you can assume that low prices are an appealing factor for them. Alternatively, if they have clicked on a link in one of your marketing emails which focuses on sustainability, your product sequencing may not begin with cheap prices but products made from natural materials.

At Advanced Commerce we offer free demos of our innovative merchandising platform to demonstrate how websites can maximise their AOVs through display product sequencing and price anchoring, as well as functions such as intelligent search and mobile optimisation.

London based Advanced Commerce has been named one of the most exciting new businesses in the region after being shortlisted as part of a brand new awards programme, the StartUp Awards National Series. You can read more here.

Published 06/04/2022




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