Whether on sellers’ own platforms or through third-party price tracking services, consumers today often have access to detailed information about a product’s price changes over time. . But how does this visibility influence their purchasing decisions? Through a series of studies, the authors found that buyers are more likely to buy now when they see a large price drop or a series of smaller price increases, because they think that the price will go up if they wait. Conversely, they are more likely to stop buying when they see a large price increase or a series of smaller decreases, because they think the price will fall. As such, they argue that sellers should consider this effect on the pricing of their products, while buyers should recognize and question this natural tendency – to expect price streaks to continue and a large changes to be reversed – before acting on it.
Whether you are looking for a plane ticket or a pair of socks, more and more online shopping platforms now offer consumers a detailed view of the historical prices of products. But how does this information influence purchasing decisions?
To investigate this question, we conducted a series of experiments with a total of more than 5,000 business school students and working adults throughout the US and Europe. We measure the impact of different types of price changes on people’s interest in purchasing products such as plane tickets, a new TV, a Bluetooth speaker, or a disposable water bottle. In each study, we showed participants the same product information, but we varied the direction (i.e., whether the price increased or decreased) and frequency (i.e., the amount of increase or decrease) of the previous price data. which they show. We then asked them if they wanted to buy the product – and we learned several constant trends:
First, when consumers see that today’s price is lower than before, they are more likely to buy now, because today’s price seems like a good deal. Similarly, when consumers see that the current price is higher than before, they are less likely to buy now, because the current price seems like a bad deal. For example, all things being equal, if a consumer sees that a product currently priced at $100 was $200 last week, they are likely to buy now, because the current price is more attractive than the previous price. Conversely, if they see that the same product was $50 last week, they are likely to hold back on the purchase, because the current price is less attractive than the previous price.
However, the picture becomes more complicated if you consider the frequency of historical price changes: In our studies, we found that if consumers are shown at least three changes in the same direction, they tend to assume that the price will continue to move in the same direction, whereas if they are shown only one or two changes in the same direction, they expect the price to change in the opposite direction. In other words, if a product currently priced at $100 was $200 two weeks ago, $150 the week before, and $125 yesterday, consumers will expect the price to continue to fall, making them more likely to stop at purchase. But if they just saw that the current price is $100 and the price two weeks ago was $200 – or if they saw that it was $200 two weeks ago, $50 last week, and $200 yesterday – then the consumers are more likely to expect that the price will come back again, pushing them to buy now.
So what does this mean for marketers? If your goal is to encourage consumers to buy now, our research suggests that a large price reduction or a series of smaller price increases may be most effective. It can be tempting to gradually lower the price over time, but our data shows that this can lead consumers to think that the price will continue to fall, causing them to hesitate to buy. But if they only see a price drop, they are more likely to expect a change (ie, a big increase) in the near future, which will push them to buy the product now. Similarly, if you change the price once, consumers may expect it to fall again – but if you repeatedly increase the price in small increments (assuming you can do it without’ y price of buyers completely), consumers tend to expect the price to continue to rise, and so they become more likely to buy before it happens.
On the flip side, our findings can also help buyers make more informed decisions about if and when they choose to buy. As with any irrational bias, being aware of the natural tendency to expect streaks to continue and a major change to reverse can help consumers question this assumption before acting on it. Instead of letting this arbitrary expectation guide purchasing decisions, consumers can benefit by doing a little research on the factors that cause price changes. For example, a predictable, one-off event like Black Friday is likely to affect prices differently than a geopolitical event like Russia’s invasion of Ukraine last winter or a macroeconomic trend like rising inflation. . Buyers can also benefit from learning more about a product’s longer-term price history, fluctuations, and average price ranges across the industry, so avoid being influenced by nearby price changes. It’s also always a good idea to think about how urgent your need is for a product, and your own risk tolerance for a potential price increase, as this can affect whether is it worth it for you to wait and see if the price drops.
Of course, there are countless factors that influence consumers’ decisions about whether and when to buy and sellers’ decisions about how to price their products. But it is important for both parties to recognize the important role that expectations play in influencing these decisions. As historical price data becomes more available through retailers’ own platforms and third-party price tracking services, managers and consumers alike can benefit from identifying how trends and frequency of price changes in history influences our assumptions about how prices are likely to change. ahead — and whether it’s worth buying now.