Companies that have discounted in response to the Great Recession now find themselves in the position of needing to find a way to return prices to something closer to “normal,” whatever that is. Those companies have gotten some good news and bad news in the form of research from Michael Tsiros of the University of Miami and David Hardesty of the University of Kentucky, as reported in the April Harvard Business Review.
The bad news? Trying to bring the price back in one fell swoop doesn’t work: only 10% of shoppers would pay $499 for a product that had been previously discounted to $349, according to the researchers.
The good news, though, is that raising prices in several steps can capture more revenue; 62% of shoppers would buy at an intermediate price of $379 and 24% would buy at $449 after the prior price rise. According to HBR, moving the price higher gradually “raises the expected future price in consumers’ minds and increases shoppers anticipation of what’s known as ‘inaction regret.’”
[The authors’ original paper is in the January 2010 AMA Journal of Marketing.]
Image source: Steve Wampler