Don’t overestimate your customers!

In retail sales, it’s a well-known fact that consumers don’t know what things “should” cost, and apart from the products they buy every day, they don’t have a reference point for pricing and they don’t shop around. Think about this for a second. Do you know what a head of cauliflower “should” cost?

For those of us involved in the pricing industry, it is therefore interesting to be on the receiving end of grocery stores’ price manipulations. I do most of the cooking and thus most of the grocery shopping in my family, so let me give you two personal examples.

I don’t eat red meat, so I use ground turkey for burgers and any other meals where you would normally use beef. My local Albertson’s sells two brands of ground turkey; one of the brands is a 1 pound package at $4.99 and the other is a 1.25 pound package at $5.49.

Last week they had stacked the 1 pound package up to the ceiling (literally!), allocating almost the whole turkey section of the counter for the promotion, and surrounded it with big “buy 2 for $9.99” signs. A whopping one cent discount! I returned to the store about 3 hours later to pick up something I forgot - and they where sold out of the “discounted” turkey.

It is obvious that many shoppers thought the promotion was a bargain. They shop for ground turkey seldom enough that they don’t have a reference point and they don’t know what a pound of ground turkey “should” cost. Thus, they can be easily manipulated.

When you set your prices do you take this into consideration? You probably know what you are selling should cost - because it is your business. But do your customers?

The second example is from the same Albertson’s. Here in southern California, grocery stores always have a section devoted to Hispanic shoppers. In some cases, you can actually find exactly the same products in the Hispanic section - just much cheaper! Obviously there’s an assumed difference in buying power between the average Hispanic shopper and the rest of the shopping population and thus a different willingness to pay.

So do you consider differences in your marketplace’s willingness to pay? Do you segment the market? Do you provide versions of your products for the various segments you sell to, or are you trying with a “one size fits all approach”? If you do, do you know how much business goes to somebody else who has the same products and prices to capture a larger portion of the marketplace? If you are looking for a quick fix to your bottom line, considering pricing for uneducated customers could really make a difference.

With warm summer regards,

Per Sjofors

per@atenga.com

818 887 4970