Greater IPDs reduce negotiated discounts
Posted: Mon Jan 06, 2025 7:12 am
When customers see a high ARP, they perceive the sale price as a significant discount, which reduces their motivation to push for further discounts. This phenomenon stems from two primary factors:
Reduced likelihood to negotiate:
A high IPD creates a sense of satisfaction. The research found that for every $1 increase in IPD, the likelihood of a consumer initiating negotiation drops by 5.7 cents. Why? Consumers often feel they’ve already secured a good deal, making them less likely to challenge the price further.
Anchoring during negotiation:
The ARP serves as an anchor that influences customers’ expectations. Even during bargaining, they subconsciously use the ARP as a benchmark, leading them to accept smaller negotiated discounts.
Higher revenue through negotiation
In industries with fixed pricing, ARPs primarily drive demand by making the product appear more valuable. However, ARPs contribute directly to revenue in bargaining scenarios by influencing the final negotiated price.
According to the study, nearly one-third of the revenue gains belarus telegram number from higher ARPs come from customers agreeing to pay more during negotiations.
Strategic similarities across pricing models
Interestingly, the research shows that the optimal ARP is similar for both fixed and negotiable pricing models.
However, the benefit of using ARPs is significantly higher in negotiable contexts. This makes ARPs a potent tool for sellers operating in industries where bargaining is the norm.
Implications for product marketers
For product marketers, these insights highlight the power of ARPs' power as a pricing tactic and a strategic lever that can shape customer behavior and drive business outcomes. Here’s how marketers can apply these findings:
Design ARPs thoughtfully
The effectiveness of an ARP depends on its believability. While setting the ARP as high as possible to maximize the perceived discount might be tempting, unrealistic reference prices can backfire. Customers are savvier than ever; exaggerated ARPs can erode trust and invite regulatory scrutiny.
Marketers should aim for ARPs that balance perception and plausibility.
Reduced likelihood to negotiate:
A high IPD creates a sense of satisfaction. The research found that for every $1 increase in IPD, the likelihood of a consumer initiating negotiation drops by 5.7 cents. Why? Consumers often feel they’ve already secured a good deal, making them less likely to challenge the price further.
Anchoring during negotiation:
The ARP serves as an anchor that influences customers’ expectations. Even during bargaining, they subconsciously use the ARP as a benchmark, leading them to accept smaller negotiated discounts.
Higher revenue through negotiation
In industries with fixed pricing, ARPs primarily drive demand by making the product appear more valuable. However, ARPs contribute directly to revenue in bargaining scenarios by influencing the final negotiated price.
According to the study, nearly one-third of the revenue gains belarus telegram number from higher ARPs come from customers agreeing to pay more during negotiations.
Strategic similarities across pricing models
Interestingly, the research shows that the optimal ARP is similar for both fixed and negotiable pricing models.
However, the benefit of using ARPs is significantly higher in negotiable contexts. This makes ARPs a potent tool for sellers operating in industries where bargaining is the norm.
Implications for product marketers
For product marketers, these insights highlight the power of ARPs' power as a pricing tactic and a strategic lever that can shape customer behavior and drive business outcomes. Here’s how marketers can apply these findings:
Design ARPs thoughtfully
The effectiveness of an ARP depends on its believability. While setting the ARP as high as possible to maximize the perceived discount might be tempting, unrealistic reference prices can backfire. Customers are savvier than ever; exaggerated ARPs can erode trust and invite regulatory scrutiny.
Marketers should aim for ARPs that balance perception and plausibility.