Putting Pen To Paper. Consumer Purchase Pricing.

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By Douglas Burson, Sphere Marketer & Analytics

Watching your bottom line? Budgets don’t always help you spend less.

Conventional wisdom says deciding what you want to spend on a product before you hit stores will help you keep your spending in check.  But new research published in the Journal of Marketing Research shows this isn’t always true.

Consumers who set a target price for a product they want to purchase before they hit the mall may unintentionally end up spending more money on that item than consumers who start their shopping with no particular budget in mind, according to newly published research in the American Marketing Association’s Journal of Marketing Research.

The article “When Budgeting Backfires: How Self-Imposed Price Restraints Can Increase Spending” is based on the findings of six experiments run by authors Jeffrey S. Larson, of Brigham Young University, and Ryan Hamilton, of Emory University.

The authors ran experiments that examined how adults made product and spending choices across a variety of products, including low-priced items, like pens, to more considered purchases, such as high-definitions TVs. In each experiment, the researchers found consumers who stated a price they planned to spend on an item routinely spent more on their purchase than consumers who did not state a spending plan.

For example, in a study evaluating pen purchases, 58.5%of study participants who stated a price point bought a pen priced higher than 99 cents, whereas just 38.6% of consumers who shopped with no pre-set budget bought a pen priced at more than 99 cents.

The authors say one reason budgets lead to overspending is because stating a budget causes consumers to focus on a small range of products, which exaggerates their perception of the difference in quality among those products, whereas consumers who don’t have a specific price point in mind look at a broader array of products, which compels them to be more realistic in how they perceive product quality relative to price.

Consumers may be able to negate this by shifting their shopping focus from price to product attributes.  A consumer who decides he wants to buy a new 42-inch TV may decrease spending by focusing on the screen size! — Consumers are more likely to look at all 42-inch TVs available, for example, then make a purchase decision based on price.

Contact:  Sphere Marketer & Analytics
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