Four words, two meanings
I have heard ‘I can’t afford it’ as the rationale for saying ‘no’ in many scenarios over the years. Anyone who has ever carried out research into the take-up of a product or service will know that price/affordability is almost always the top barrier stated.
For some people, ‘I can’t afford it’ is a genuine answer, there is no money left for anything after the bills are paid. If the bills could be paid with money to spare, they would consider the product or service. But for others, what they actually mean is, ‘I’m choosing to prioritise spending my money differently’.
Those who say they can’t afford a product or service in a survey are not always those on the lowest incomes, and often they are enticed into considering the product/service if they deem it to be packaged in a way that represents ‘good enough’ value. In short, we have a complex relationship with money, how we choose to spend it and the justifications we make when doing so.
When it comes to economic decisions, we are not always rational creatures – our actions are unconsciously shaped by heuristics and biases. The lure of sales and special offers is so strong because of the perception that the overall outcome is saving rather than spending, regardless of the fact that we may be buying goods we would otherwise never have purchased.
The pricing of products at a price point ending in ‘99’ is widespread due to the left-digit effect where we instinctively (albeit irrationally) round down to the first digit encountered, so £4.99 is perceived as £4 while £5.00 is perceived as £5 despite only one pence difference. And haven’t we all spent more money online to qualify for a free delivery threshold, even though the cost of delivery would have been less than the cost of the additional item? Why do we do this? Because the loss aversion heuristic makes us strongly prefer gaining (an additional item plus the free delivery offer) over losing (money spent on delivery).
The implication for brands
Regardless of which camp a consumer falls into, as the cost-of-living increases (the Consumer Prices Index was up 7.9% over the 12-month period ending May 2022), most people will need to make more, and maybe tougher, decisions about how they choose to spend their money, and brands will need to work harder to be considered, and to retain customers.
For those who are willing but genuinely unable to pay, there is little brands can do to persuade them – but these consumers should not necessarily be ignored. 1 in 2 UK adults believe brands are responsible for building and encouraging inclusive societies and there is plenty that brands can do to support those struggling financially.
Airbnb have utilised their technology to help Ukrainian refugees and those in need of emergency accommodation; Vodafone are partnering with The Trussell Trust to provide free connectivity to someone in digital poverty for every Vodafone together household; and Spotify have been running a Covid-19 Music Relief project since 2020 to provide financial relief to music industry professionals in need.
But for consumers who are able but currently unwilling to pay, there are price, value and justification levers that can be pulled to help persuade them.
Price vs Value + Justification
First up, a product/service needs to be priced appropriately to have the best chance of being considered. Determining the correct price should be based on hard science – balancing profitability with a price that’s suitable for the product. There are several pricing techniques to utilise in research to help answer the second part of this equation.
I’ve always liked Van Westendorp’s price sensitivity meter for its nod to the price-quality heuristic. This method determines the price that would be so cheap someone would question the quality of the product, which is important given that people often tend to use a higher price point as a shortcut for quality (remember when Peloton increased their prices and their sales went up?!). But I’m also charmed by brand price trade off’s ability to reveal the additional value a brand brings beyond the price point deemed acceptable for an equivalent competitor product.
How much someone values a particular product/service can extend well beyond the brand and can play a huge role in both the decision to purchase, and willingness to pay. In the context of purchasing, the value we place on the item is deeply linked to our needs.
At a fairly simplistic level, spending money on travel and experiences is serving a need for adventure, while buying expensive watches or designer handbags is serving a need for status and security (these items can be re-sold for close to their original value). Paying a premium for a quicker service is driven by a need for convenience and ease, while spending more on gifts for others than you would on yourself reflects a need to foster a connection or demonstrate commitment/love.
It is the needs being served and the value placed on a product/service that leads to a consumer justifying paying the given price for it, assuming the price is broadly right. This is why a needs-based segmentation is a popular technique for understanding your market, the members of which are likely to have a range of needs between them.
Check in with your consumer context
Now more than ever, brands should be taking the time to understand their target consumers. Our needs and values have evolved during the pandemic (see our proprietary research on this topic, and watch this space to see the changes one year on!) and the justification process has become more complex as discretionary incomes have been curtailed (Asda’s Income Tracker estimates discretionary income has fallen by 17.2% over the 12 months ending May 2022).
Aim to regularly check in with your consumers and their lives; an online forum or a couple of focus groups every few months can help you understand what’s making their worlds tick, and the sorts of spending decisions they’re making. If you’re conducting research into new products/services, their pricing or take up, be sure to include questions that help you understand the economic context consumers are living in – is money tighter? Has their mindset around spending changed? And seek to understand what they value in the product or service you (or your competitors) are offering, how it might fit into their lives and the needs it can serve.
If you’d like to chat more about any of the topics covered here, or are considering running research to check in with your target audience, please get in touch – we’d love to help ?