Customers have an idea of whether you are a low- or high-priced store almost before they ever interact with you. There are many reasons for it, and you are responsible for a lot of them.
There is a story that demonstrates this concept that happened in a neighborhood in Boston called Jamaica Plain. It was historically a working-class neighborhood with many immigrant families living there.
Eventually, Jamaica Plain began to gentrify, and Whole Foods replaced the regional grocery store there. The residents of Jamaica Plain were livid. They had picket lines around the construction site. The primary argument was that Whole Foods was too expensive.
A reporter checked prices between the local chain and Whole Foods. For a basket of eight to ten items, it was less than a dollar’s difference between the regional store and Whole Foods.
This incident demonstrates a concept called Price Image. Different from actual prices, Price Image is the reputation that a store or brand has for being high- or low-priced. In other words, Price Image is the intersection of price and brand.
For example, Apple has a high Price Image. That means most of us assume that an Apple product will be more expensive than the competition.
On the other hand, Southwest Airlines has a low Price Image. Most people believe that a ticket on Southwest will be less expensive than the competition.
We discussed Price Image on a recent podcast. We discussed how people form these price impressions and what happens when they are wrong. We also explore how the Price Image becomes so inaccurate from reality. Finally, we discuss that once you have a Price Image, what you can do with it from a Customer Experience standpoint.
WHOLE FOODS HAS A WHOLE LOT OF PROBLEMS WITH PRICE IMAGE
Whole Foods has high prices, but they are not wildly out of alignment with other stores. However, the perception is that Whole Foods are far more expensive than other stores.
For example, a story ran in The Denver Post several years ago about the opening of another market, Trader Joe’s, which has a low Price Image. The reporter interviewed a woman who said that she would be able to switch to Trader Joe’s instead of Whole Foods, and it “will lower my grocery bill by hundreds of dollars each month.”
However, it turns out that Trader Joe’s isn’t hundreds of dollars cheaper. Whole Foods is only around four percent more than Trader Joe’s.
Whole Foods does not want a high Price Image. They tried all sorts of tactics to combat it, including an employee-hosted, low price tour of the store. However, none of it worked.
So, how is it that people form these impressions?
There are two approaches we can take to studying Price Image formation. One is the prices themselves. The other is non-price information.
Regarding prices, the influence can be the distribution of prices in the store and what’s discounted when. In other words, how do you manage the pricing in your firm?
Focusing on pricing will help you manage your price image. However, it is the non-price influences that form where we would recommend firms start their research.
People form Price Images based on a lot of non-price information. When you enter a store and before you see the first price tag, you will have developed a general Price Image of that store. Appearance, atmosphere, and environmental factors help form this general impression.
The book, Built from Scratch: How a Couple of Regular Guys Grew The Home Depot from Nothing to $30 Billion, shares a story about how appearance matters. When the first Home Depot opened, some enterprising young employee polished all the concrete floors before the grand opening. The founder felt polished floors sent the wrong message, so he drove forklifts around to make the floors look more grungy. He thought scuffed floors in the store gave off an affordable vibe.
Some grocery stores use this strategy, too. They put the cardboard boxes the products were shipped in with the tops cut off of them on the floor. My wife Lorraine hates these stores!
Both of these presentation details appeal to the Customer’s Subconscious Experience. The scuffed floors and cardboard boxes communicate messages about the experience without being explicit.
Subconscious signals your experience gives are vital to the outcome of your Customer Experience. Unfortunately, most organizations ignore it. However, it is essential to get down into this detail.
One of the easy ways to form a price image is by looking at all the signals that you get when you walk into a store. For example, there’s a reason that Costco has unfinished concrete floors, and everything is on warehouse shelving with overhead lighting. These subtle signals tell you that this is a discount store. It says, “This place has low prices.”
The same is true for higher Price Images. A BMW dealer sends you signals, too, whether it’s the carpet or what’s on the walls, or even the beverages they offer you when you are shopping. These signals tell you that the reason that these cars are higher priced is that BMW is more exclusive. It is as if they are inviting you to join the club.
BMW intentionally wanted a high Price Image, but Whole Foods did not. Whole Food’s high Price Image was a byproduct of other decisions they made. When you walk into a Whole Foods, everything about their locations screams high prices, from the beautiful displays of fresh flowers to the perfect pyramids constructed in the produce section. Even if the prices aren’t that high, it seems like it’s going to be high priced, and so people act like it is.
THE BIG TRADEOFF: WILL YOU LOSE VALUE WHEN YOU CHANGE PRICE IMAGE?
Of course, we all know that Amazon has taken over Whole Foods. Associating the Whole Foods brand with the Amazon brand should lower the price image. Now, the question for Whole Foods is, will that association with Amazon damage these other branding elements that do create a lot of value for their target customers?
Price Image and other brand elements are challenging to disentangle in the minds of consumers. You need to make a choice. Is it more critical to lower Price Image or to maintain your quality brand image? You may not be able to separate those two things.
For example, Wal-Mart famously has a reputation for cluttered stores, often because they drop big pallets of food items and other things in the middle of aisles where people are walking. Customers complained about it, and Wal-Mart listened. They removed the pallets and decluttered the stores.
And guess what? When Wal-Mart did, customers began to complain of high prices—even though Wal-Mart hadn’t changed their prices at all. By making this store more beautiful, they accidentally sent a signal that their prices had gone up and took away some of the value of the “Wal-Mart Experience” with their customers. So, they went back to their old clutter-up-the-aisles-with-pallets strategy.
Economists like to talk about the fact that “there’s no such thing as a free lunch.” In other words, opportunities come at some cost. That’s also true of Customer Experience actions and marketing actions, too. There’s no way to improve your quality image without necessarily affecting your Price Image or vice versa.
Moreover, there are lots of these tradeoffs you need to make. The question becomes, are you making them deliberately? Are you thinking about what are the non-conscious backfire effects that might happen? And are those costs you’re willing to pay?
If your job or part of your job involves managing prices, realize that this discussion is part of a broader idea. Managing prices by themselves are probably not going to be your end goal. You also need to have a strategy for accomplishing that.
Part of what makes pricing so interesting is that there is a right answer. We can look at the prices and see if people’s Price Images are accurate or not. One of the very first academic papers on this was published in 1969, called “Price Image Versus Price Reality.” Back then, the research found that most of the Price Images were wildly inaccurate.
Your brand image, your quality image, or your Customer Experience image might be out of line with what you deliver, too. If you have too positive an image when compared to your reality, then bully for you. However, you must also realize it may or may not be sustainable in the long run unless you clean up your act and perform well.
It’s also frustrating that you may have a great Customer Experience objectively, but customers don’t see it that way. Then, you can try to figure out why.
I love the phrase, “Never let a fact get in the way of a good story.” What I mean by that is people’s perceptions, and what happens, in reality, can be very different. People get these Price Image perceptions in their minds that are built up through subconscious signals you are either giving them on purpose or not.
Are you trying to get a return on your investment by improving your Customer Experience but feel unsure of what to do first? Beyond Philosophy can help. Since 2002, we have consulted brands all over the world and completed hundreds of successful implementations. To learn more about how our Global Customer Experience Consultancy can help you, please click here.
Hear the rest of the conversation on What Affects Customers Perception of Price on The Intuitive Customer Podcast. These informative podcasts are designed to expand on the psychological ideas behind understanding customer behavior. To listen in, please click here.
If you enjoyed this post, you might be interested in the following blogs and podcasts:
THE RECESSION IS COMING; WILL YOU BE PREPARED?
THE REMARKABLE POWER OF HABIT TO TRANSFORM CUSTOMER BEHAVIOR
INSIGHTS TO UNDERSTANDING CUSTOMER HABITS (Podcast)
Colin Shaw is the founder and CEO of Beyond Philosophy, one of the world’s leading Customer experience consultancy & training organizations. Colin is an international author of six bestselling books and an engaging keynote speaker.
Follow Colin Shaw on Twitter @ColinShaw_CX
Rocheleau, Matt. “Whole Foods opens in Jamaica Plain” www.bostonglobe.com. 1 November 2011. Web. 28 October 2019. <https://www.bostonglobe.com/metro/2011/11/01/whole-foods-opens-jamaica-plain/P1kCLWNIqZPNao6HTxLPAL/story.html?p1=Bcom_ArticleStub_LogIn>.
Anderson, Rob. “Resolved: Whole Foods Isn’t as Expensive as People Think It Is.” Boston.com. 14 February 2011. Web. 28 October 2019. <http://archive.boston.com/bostonglobe/editorial_opinion/blogs/the_angle/2011/02/whole_foods.html>.
Gibbons, Kate. “Grocery list shake-up: Shoppers love Trader Joe’s, but how do the prices compare?” www.denverpost.com. 17 February 2014. Web. 28 October 2019. <https://www.denverpost.com/2014/02/17/grocery-list-shake-up-shoppers-love-trader-joes-but-how-do-the-prices-compare/>.
“It’s a Done Deal: Amazon Takes over Whole Foods.” 28 August 2017. Web. 28 October 2019. <https://www.foxbusiness.com/markets/its-a-done-deal-amazon-takes-over-whole-foods>.