How to avoid the common unintended consequences of price adjustments on consumer perception
Last year, I had a conversation with the consumer team of a large supermarket. Their primary objective was to gamify their loyalty program, with a strong emphasis on prices. They believed that incorporating games, like a supermarket product hide and seek, and showcasing the amount of money saved and accumulated in customers’ accounts, would encourage people to use the program more frequently. If a bit crude, the focus is fair: price is a big driver of consumer choice. But what about other customer needs? Such as time? Would customers have the flexibility to play a game like “supermarket hide and seek” when they are on their way home from work, possibly with children in tow? This aspect of their proposal overlooked broader behavioural factors that influence consumer choices.
Although they acknowledged the significance of heuristics, or mental shortcuts, in decision-making, they had no plan to tailor them based on socio-demographic groups, personality or shopping style, priorities, and preferences. The team believed that adjusting the price of goods or services and implementing gamification techniques alone would directly impact consumer behaviour. They even suggested launching uniform challenges, like buying all the ingredients required for pizzas, even for those who never consume them. With that, they ran the risk of both alienating some consumers and overlooking other significant factors that play a crucial role in shaping behaviour. Here are the concepts I shared with them to guide their strategy.
Heuristics informed by personality
Heuristics are methods we rely on to simplify decision-making and navigate complex choices quickly. For instance, consumers often choose familiar brands or products based on past positive experiences, even if they are priced higher. While we all similarly use these mechanisms, our individual experiences and past choices shape these biases, making them unique to each person rather than universal. That’s why a game centred around pizza, no matter how fun, will only appeal to the consumers who eat pizza, and risk alienating those who do not.
Values
One factor that I recommended taking into account was the influence of values. People’s values, beliefs, and principles strongly impact their decision-making process. While price can be a factor, it is not the sole driver of behaviour. For example, consumers may value their time far more than they do hunting for smaller prices, which may save a couple of pounds, but waste 15 minutes. Or they may choose to support environmentally friendly products, even if they come at a higher price because their values prioritise environmental sustainability.
Reciprocity
Another aspect I suggested they consider was the sense of reciprocity. We often feel a sense of obligation or duty to reciprocate when others have done something for us. This sense of reciprocity can have a more substantial influence on behaviour than price alone. For instance, consumers may be more inclined to support a local business or donate to a cause if they feel a sense of connection and reciprocity.
Social Context
I encouraged the team to recognise the significance of networks in shaping behaviour. Consumer choices are often influenced by their social networks, including friends, family, and colleagues, aka Socio-cultural and Socio-familial milieu. Recommendations, social norms, and shared experiences within these networks can often have a stronger impact on behaviour than price alone.
Benefits & broader economic implications
These concepts helped the consumer team reframe their focus and understand that solely focusing on price and gamification can miss the mark and even result in unintended consequences. More broadly, by solely relying on price adjustments, economists may overlook the broader implications for consumer behaviour. Price adjustments have the power to transform the value or perception of goods and services, but they also have the potential to jeopardise their appeal. I confronted some of this debate in this article about the consequences of putting a price on nature. Once a price is attached to something, it can be challenging to contain the effects and may alter consumers’ perception of worth. Therefore, economists should consider not only the direct influence of price on behaviour but also the indirect consequences and the broader factors that shape consumer or investor decision-making. By taking into account values, reciprocity, social context, and heuristics, to name only a few, we gain a more comprehensive understanding of consumer behaviour and develop strategies that go beyond a narrow focus on price.