How does product pricing affect consumer trust and your reputation

I recently bumped into a high school teacher and she was telling me about a group of students who decided to study the effect of clear pricing, or lack of it in retail shops in two cities. I got a copy of the presentation made by the students title "Shopping in a New Perspective", and I would like to summarize the study and results.

About Study

Students want to find out how much the sales price of certain items increase when the client buying it isn’t local Lebanese and comes from another country whether in the Arabian Peninsula, Europe, America, or Australia.  Students visited a several of shops in Aley (suburb of beirut) and Beirut (the capital). Chain store that are present in Aley and Beirut were also visited in Beirut to detect possible variation prices.

Findings

Students found out that prices varied in Main Street Aley for the same product for different buyers, and that prices were not displayed and increased for non-locals between 5%-20%. There was not discrimination between Arabs and American shoppers who received the same treatment and hike in prices.

Students found out that the prices did not vary in Hamra Street (Beirut) for the same product for different buyers, and prices were displayed and fixed.

Survey

Students conducted a survey among shoppers in Aley regarding price transparency and changing prices amongst local and non-local shoppers. Students asked the following:

1. Do you ever feel ripped off in some places?
2. Have you ever argued (negotiated) about a certain price?
3. Did you ever think about doing something about it?

Results

Results of the survey are an eye opener to any business owner who believes that pricing does not have to be transparent (i.e. clearly visible) and that you can maximize your revenue by pricing differently to locals and non-locals.

1. Do you ever feel ripped off in some places?
1. 100% YES
2. Have you ever argued (negotiated) about a certain price?
1. 70% NO
2. 20% SOMETIME
3. 10% YES
3. Did you ever think about doing something about it?
1. 80% Do not say anything to sales person
2. 100% Stop buying there
3. 90% warn others about place.

Conclusion

Business owner may believe that changing prices based on a buyer is a way to maximize revenue, especially in towns where tourism is a driving force, but today as people communicate amongst each other on the internet, social media and word of mouth, your reputation is there for all to see. Imagine that 90% of the unhappy customers talking about your business practice and using the Internet to spread the word about it.  Imagine that all of them will not be repeat business, given that most non-locals travel repeatedly to same areas and buy more than once.

I may dare and say that you are most likely to lose more business compared to the immediate spike in revenue, and that the negative goodwill is more likely to force you to shutdown your business earlier than later.

Business owner MUST prominently place prices in plane sight, become transparent, and apply a one-price model.  Trust and transparency outweighs negotiation practices. Shoppers have other options and will not come back, even if your price is lower in some articles. Trust is earned!

Related Resources

Links

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