3 Behavioral Economics Principles Every Online Shop Must Master
The average shopper can't remember a time when fixed prices weren't the norm. After all, it's been well over a century since rounds of haggling was the way goods and services changed hands. Fixed prices were introduced in the early 1800s as an attractive new feature that could save consumers time, money, and emotional energy, and were a great benefit to merchants, too.
The benefits stuck, even in an era of e-commerce when consumers assume online stores offer lower prices without brick and mortar overhead and when comparison shopping is easier than ever.
However, a new startup called PriceWaiter is bringing haggling back to e-commerce, and it's bringing a refreshingly human element to the online marketplace. The approach also highlights three behavioral economics concepts that play a big role in selling goods online:
PriceWaiter allows merchants to offer a personalized price in addition to their usual fixed price. Customers can add an item to their shopping cart, pay, and ship like normal. Or, if customers don't want to pay the fixed price, they can simply click the PriceWaiter button and make an offer. The merchant accepts, counteroffers, or rejects that offer, and then customers can complete the purchase in a few clicks straight from their email.
It's a shopping experience defined by the needs of the individual, a natural extension of increasingly personalized marketing campaigns tailored by online data collected by companies like Facebook and Google.
Not only do merchants interact heavily with customers and their data leading up to the sale, they can now maintain that same level of connection during the sale. Co-founder Andrew Scarbrough explains, "It slows people down and makes them more engaged shoppers."
PriceWaiter engages shoppers by offering them a unique opportunity to set their price, as well as a higher degree of interaction with the brand, on-site. Best of all, that interaction is a true dialogue, rather than a unilateral arrangement.
In an age when brands increasingly view advertising as a conversation, PriceWaiter offers a way to humanize the actual purchase process as well.
As fast and effortless as fixed prices are, they also remove the human element that is part of why haggling can be an exhilarating experience. Negotiating the price in, say, a traditional Turkish bazaar lets the seller express pride in the craftsmanship and quality of the goods he sells. It allows the buyer to express their needs and pain points. As efficient as fixed prices can be, they eliminate that process of communication. PriceWaiter has found a way to add it back into the shopping experience without sacrificing convenience.
That human element is crucial for building trust, which online retailers need to establish to get the customer to actually make a purchase. A 2003 study in Psychology & Marketing showed that trust-building was crucial for online retailers, especially those who were less-well-known and didn't have as much brand cache. Features that reduced risk and gave the customer a sense of control, such as security encryption or money-back guarantees were found to lower perceived risk and encourage the customer to go through with the purchase.
Personalized pricing is a similarly risk-reducing feature, allowing the customer to use their knowledge from comparison shopping and their brand preferences in their favor. They aren't forced to make a decision from price alone, but can make an offer to their preferred retailer. The retailer in turn can decide if the discount is worth the extra business they may have missed out on if the customer had chosen to go to a different site, or pass on the purchase entirely.
Scarbrough explained that many PriceWaiter offers ask for just a 10 percent discount, something easy for most retailers to swallow, and that can add up for major savings for the consumer on big-ticket items like furniture.
Even a small discount can build trust, loyalty, and increase a customer's probability of purchase, reducing their resistance and increasing consumer confidence.
Simply by humanizing the sale process to match native advertising campaigns and friendly social media engagement, retailers can increase profitable sales and satisfaction.