A recent study of consumer behaviour has identified a link between customer perceptions and a product's efficacy. Just think, you discount your product to generate new trials but user perception of your product drops with the price! This study suggests just that, consumers who pay a discounted price might derive less benefit from the product than those who consume the same product, purchased at full price.
Study participants were asked to solve puzzles after consuming an energy drink said to increase mental acuity. People consuming the drink offered at full price solved more puzzles than those offered the drink at a discounted price. Interestingly, consumers exposed to strong advertising claims derived greater actual benefit from consuming the product; they solved more puzzles.
Many entrepreneurs, small business owners and service professionals view price discounts as a powerful way to establish market awareness and boost slow demand periods. While it is often a challenge to re-establish competitive pricing after discounts, this study suggests that price discounts might further reduce the perceived value of the product for the user.
Does this undermine our Brand and market positioning? Customer relationships are based on consistency to establish favourable perceptions. Inconsistent messages confuse the consumer breaking down these valuable relationships.
We suggest that you consider your options before dropping your prices (and margins). Maybe limit the discount to new customers and for a limited amount of products. Better yet, invest in advertising that targets your core audience(s) and positions your product and business as you want it!
Baba Shiv, Ziv Carmon, and Dan Ariely published their study results in an article entitled “Placebo Effects of Marketing Actions: Consumers May Get What They Pay For”, in the Journal of Marketing Research, Volume 42, Issue 4, November 2005.