Why 40% off may be better than a low price

It's funny how your consumers remember the first thing you tell them.

A recent study suggests percent off is a much better approach than a low price point. It seems that if your first marketing message focuses on a specific price, consumers tend to remember it -- and it will come back to haunt you.

Here's an example. Imagine you sell widgets for $115, and your ideal customer would buy three widgets a year. To lure a new customer, you offer the first product at a special introductory price of $69. The customer buys, happy, but then when you try to sell the same customer again at the full price of $115 she balks.

Why? She remembers your first pitch, for $69, and now $115 seems a lot higher.

Now, start over. If you lure the first customer with a "40% OFF" offer, she may be tempted to buy. Then, when you try to sell the customer the second time at the $115 price point, she is less likely to recall that she paid only $69 for the first widget -- because you didn't focus on it.

It's a funny habit of humanity, how people respond to different price offers that mean exactly the same thing. Percentages are attractive lures, and they avoid potential lethal effects on future sales from customers who remember the introductory price. Now, if only someone could explain why gasoline prices come in 9/10s of a penny increments.

(Summary of the study by Devon DelVecchio, H. Shanker Krishnan, & Daniel C. Smith here.)