Avoiding price wars, making the most of a willingness to pay
Because customers do not always make rational decisions, the best solutions often seem paradoxical. Companies almost always assume that customers will decide rationally, are well informed, and see price as the most important factor. The following customer examples illustrate how valuable it is to understand the actual motives and factors that guide customers during a purchasing decision – in order to use this knowledge to develop a strategy.
€9.6 million more in profits for the FAZ (Frankfurter Allgemeine Zeitung)
The FAZ had always assumed that an increase in price would lead to a loss in circulation because that's the way it had been in the past. The only question was how high the loss in circulation would be.
Problem: price increases were poorly communicated
After analyzing and understanding the decision-making process involved in buying newspapers, it became clear that the previous loss in circulation was not caused by the price increase itself, but by the manner in which it was communicated.
Goal: price increase without a loss in circulation
By using a different communication strategy, the Frankfurter Allgemeine Zeitung was able to significantly increase the price of its newspaper without affecting circulation. As a result, the annual profit from circulation revenues increased by €9.6 million per year.
Project with highest ROI
For this project, Vocatus and the FAZ were recognized with an award for the highest return on investment (ROI).
"Vocatus helped us to optimally exploit our price potential ..."
"The newspaper sector is in a state of upheaval, and the business model is changing. Things that have endured for many years are nowadays being questioned. The search for fresh sources of revenue is occupying publishers, yet there's a great deal of uncertainty. In this phase where experience is no longer any help, we need new tools in order to make the right decisions. Vocatus helped us to recognise our price potential in the reader market and optimally exploit it without taking any unnecessary risks. The significant increase in sales revenue has made a major contribution to FAZ being able to rapidly overcome the consequences of the financial crisis and once again address future issues on the basis of a stable business model."
Frankfurter Allgemeine Zeitung
70% more bookings at L'TUR
L’TUR is the market leader in last-minute vacations and is therefore the first stop for most customers looking to book a trip. Once customers have found their dream vacation, the majority go on to compare prices at a competing site. Given that the prices are often quite similar, they then book with the competition because they happen to be on their website.
Ending the decision-making process
After understanding the decision-making process based on a project run by Vocatus, L'TUR developed a search engine that showed prices from the most important competitors for the selected trip. When L'TUR is cheaper, the decision-making process is finalized and the customer books directly on the website currently being visited: L'TUR.
Fairness is often more important than price
However, even when L'TUR is more expensive than the competition, the conversion rate still goes up. Many customers consider it fair that L'TUR makes them aware of cheaper providers. After all, a vacation is often the most important event of the year, so many customers prefer to book with a fair provider. Should there be problems upon arrival, they can also expect to be treated with fairness.
It may at first seem paradoxical to show customers rival prices, especially when the competition is cheaper. But this is how L‘TUR increased the conversion rate on their site by 70%.
"... a joint history of success"
"We're linked to Vocatus by many years' collaboration and a joint history of success. Now that we've jointly won the German Market Research Prize for the second time in 2010, it's clear that the approach which combines analytical and pragmatic thinking works splendidly."
L'TUR Tourismus AG
Psychological pricing profile: Predicting the reaction to prices
The psychological pricing profile from Vocatus allows the decision-making process and the role that pricing plays for customers to be comprehensively analyzed.
Based on extensive empirical studies, the psychological pricing profile has been developed by Vocatus to reliably predict the purchasing behavior of consumers and their reaction to prices. It consists of three different levels (see graph):
Source: Vocatus AG
Level 1: emotion and motivation
The first level includes emotions and motives connected with the purchase. It deals, for example, with the role of brand promises or convenience, the power of habit, fairness or the search for a bargain.
Level 2: cognition
It is also important to consider the cognitive level. Central questions include: How well do consumers know the prices? How important are prices to them? And how do they ultimately evaluate these prices?
Level 3: behavior
The third level of analysis concerns the psychological pricing profile of actual purchasing behavior. For example, consumers often demonstrate very different decision-making strategies depending on the location and the situation. While they often purchase chips at a discount store, carefully examining the price, they might thoughtlessly reach for the next best product at a gas station to satisfy their hunger pangs, without even looking at the price tag.
Customers often decide quite differently according to motive, price interest or situation. This is why the entire psychological pricing profile must be decoded as it is the only way to develop an optimal price strategy, especially one that may at first seem paradoxical.