Level up the price intelligence game: Delving into consumer memory

Each one of us is a consumer. Let’s take a stroll down our own ‘price tag memory lane’.

Do you recall what was the price of the chocolate you recently bought? Or the pack of potato chips? And think about grocery items, what was the price of a kg of wheat, rice or tea that you purchased? Take a guess.

Now cross-check the internet, your last bills or call up the shop to know the true in-market prices.

If you got all of them correct, then give yourself a pat on the back, you’ve earned it! Because not everyone can successfully recall the prices – we’ve spotted this trend across categories and our research experience backs it up. It can range from 22 per cent of consumers recalling the correct price to as high as 90 per cent, depending on your frequency of purchase and the category price point (if at all your category has such a thing with all key brands operating in that price range).

We’ve noticed that a greater number of consumers can recall the correct price for categories that operate on psychological price points, with a high frequency of purchase compared to the less frequent, fuzzier priced categories (Refer Image below).   

Price elasticities defined as % change in brand volume share for every % change in price. Source: KANTAR pricing research surveys

But, nevertheless, consumers do have a perception of price in mind, a psychological benchmark to assess what price they might have paid for the product. A section of consumers would mentally overestimate the price than what is there in market. Whereas some individual’s memory is skewed towards lower price than what it is, and another segment would get pretty close to the actual price. 

This “perception” of price, and more importantly, to which direction do they lean – higher or lower perceived price, tends to affect the way they make purchases in real life. Our takeaway from multiple studies indicates that consumers whose memory tends to exaggerate price as higher than actual, are less likely to switch out of a product in case of price increase. Those who recollect the exact price, or recall it as being lower than reality, are more flirtatious (with other products) in situations of price rise.

Every category has a mix of these groups of consumers and this gem of hidden information is crucial for marketers who are planning price portfolio changes. Having a well-entrenched price recall can cut both ways – it does allow building salience but also anchors the price firmly, making it hard to shift in future (Refer image below: High price elasticity at magic price points).

So then, how do we determine the right prices for different packs within the portfolio – existing products, new additions, and replacements?

An effective approach involves conducting consumer research surveys that include questions on price recall and trade-off tasks, simulating real life shopping scenarios. Integrate both sets of data to construct more intelligent individual choice behavior models. This leads to sharper forecasts for evaluating how price changes impact your business in a competitive market.

Till then, hold onto your intuition. Happy pricing!     

Disclaimer: The views expressed here are solely those of the author and do not in any way represent the views of exchange4media.com