How products are priced can leave consumers confused while trying to get the best deal.

Mathew Isaac, Loyola professor of marketing and chairperson of the Marketing Department at the Albers School of Business and Economics at Seattle University, delves into why.

Mathew S. Isaac, Ph.D. is the Seattle University Loyola Professor of Marketing and Chairperson of the Marketing Department at the Albers School of Business and Economics. Dr. Isaac’s research focuses primarily on consumer judgment and decision-making, including how numerical information affects consumer evaluations and decisions. His work has been published in leading scientific journals and featured in the business and popular press, including Harvard Business Review, Financial Times, Time, Forbes, Wall Street Journal, New York Times, and The Atlantic. He writes a blog on cognition for Psychology Today.Dr. Isaac received a bachelor’s degree in Biology from the University of Chicago, an M.B.A. from the Booth School of Business at the University of Chicago, and a Ph.D. in Marketing from the Kellogg School of Management at Northwestern University. Prior to entering academia, he advised media, healthcare, and private equity clients as a Consultant and Manager for Bain & Company and ZS Associates.

Trader Joe’s sells bananas at 23 cents per banana. Publix charges 55 cents per pound. Why do these retailers choose different price formats, and does this affect shoppers? My co-authors Sarah Whitley and Julio Sevilla from the University of Georgia and I find that consumers’ price perceptions are influenced by the numerical value shown to them. For prices, lower numbers signal better deals – people anchor on these low numbers without fully considering what the number actually means. As a result, for low-weight products that are each under one pound, like bananas, unit-based pricing is more attractive to consumers. On the other hand, for higher-weight products that are over one pound, like watermelons, weight-based pricing is more attractive. For example, paying $8 for a 4-pound watermelon seems like a worse deal to consumers than paying $2 per pound for the same watermelon, even though they would actually pay $8 in each situation! We conducted 16 studies with nearly 10,000 participants to demonstrate the robustness of this price format effect, including two field experiments that examine consumers’ actual purchasing behavior. Our findings have important implications for retailers, given that some merchants use unit-based pricing and some use weight-based pricing for the same product. We conducted a series of interviews with retail industry executives and found that they often lack an articulated rationale for choosing one price format over another. Being more strategic when choosing a pricing format for produce and other grocery products can influence consumer perceptions and potentially increase their sales. For consumers, being aware of this anchoring bias can potentially help them make smarter decisions when they are out grocery shopping.

Read More:

[Sage] - Units or Pounds? How Anchoring on Salient Price Information Influences Perceptions of Product Value

[Psychology Today] - All Things Numbered

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