How customers perceive the price

Is the price war worth it? 

The perceived price is as important as the price itself.

The most typical mistake in today’s food & beverage market is to enter a price war.

Many companies are cutting prices because they believe it will increase their perceived value to consumers.

Unfortunately, most of the time this is not the case.

The way customers perceive price is as important as the price itself.

Most companies want to be perceived by consumers as cheaper than competitors. This applies to all companies except those selling luxury products.

Companies should make sure that customers have a good idea of how the company’s prices stack up against those of competitors.

The intense price competition that pervades many industries makes consumer perception more important than ever.

We all know that consumers are looking for the best perceived price-quality ratio.

How to change price perception

How can companies provide the best price perception of their products?

Companies can choose among four strategies: offer lower prices, shout out their prices, offer great deals, and personalize the experience.

Consider as an example a typical food store that primarily targets customers willing to spend a great amount of money.

The store needs to have sought-after products and high perceived quality.

In this case, the strategies would be upselling and storytelling about the origins of the products and not discounts or coupons.

Differently is the case for those who sell mid- to low-level food products.

Its customers are less sensitive to the quality and sophistication of the product.

Therefore it is convenient for these stores to have their price perceived as cheaper.

Competitors make a difference on product price

Let’s make some examples of products with interesting price perceptions.

King Cobra is a 7.5-degree beer with a price tag of 8 euros for a 0.75cl bottle.

When this was tasted along with other beers it was considered very expensive.

In fact, the average price of an industrial lager is 1.60 euros per liter and that of a premium beer is about 3 euros per liter.

However, when the same beer, was compared with wines with the same bottle (0.75 cl), the participants were willing to pay up to 28% more than its real price.

This demonstrates how the positioning of “those around” can affect how much a customer is willing to spend.

One practical example

Another interesting case is certainly Nespresso.

In 1986 the brand sold the first capsules to coffee shops and restaurants and then brought them into people’s homes.

The genius of Nespresso is that the capsules have the perfect amount of coffee and do not involve waste or dirty the environment around the machine.

These features thus generate the perception of excellent value for money even though a capsule is not convenient. The capsule costs around 30-40 cents.

If Nespresso had tried to position itself as a regular coffee it would have had great difficulty.

Its 34 euros for 454 grams versus the average of 4 euros for 227 grams would have positioned it out of the market.

In reality, its great stylistic appeal and the features we mentioned earlier make it the undisputed leader in the coffee world.

If you want to learn more about this topic, this article is an excerpt from my book “Neurofood: neuromarketing applied to the world of food and wine” published by Hoepli.