Wednesday, May 12, 2010

Use Partitioned Pricing to Highlight Benefits

In discussing partitioned pricing, researchers at Harvard University say, “The price tag is evolving.” 
     Partitioned pricing presents an item’s cost as a main price plus one or more surcharges. With ecommerce, surcharges might include shipping. For store sales, they might include layaway fees. For all selling channels, there might be sales taxes and the costs of options like accessories and setup.
     The opposite of partitioned pricing has been called combined or bundled pricing. Consumer psychology research over the years sometimes concluded that partitioned pricing increases sales more than does bundled pricing, and sometimes concluded bundled pricing is better. Gradually but inexorably, the trend in research findings has been toward favoring partitioned pricing.
      Based on research at Adelphi University, University of Alabama-Huntsville, and University of Dayton, here are tips on using partitioned pricing:
  • Partitioned pricing calls attention to each of the components for which a cost is stated. Use partitioned pricing to highlight what you see as benefits to the shopper: Expedited delivery. The budgeting aid from layaway plans. Knowing that the product can be personalized with accessories.
  • Compared to bundled pricing, partitioned pricing increases purchase intentions with products and services that carry some financial or psychological risk for the shopper. Partitioned pricing makes little difference in purchase intentions for routine purchases. An important exception, though, is that even for routine purchases, ecommerce customers get irritated when they can’t quickly and easily discover shipping and handling charges. So as a general rule, use partitioned pricing in ecommerce.
  • Do the partitioning so that the amount of each surcharge is no more than 20% of the base price. If any surcharge is a high percentage, consumers will consider the entire pricing structure unfair. That affects not only the current purchase, but also the potential for future business from that shopper.

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