What the price of mangoes has to do with your business

As an infrequent visitor to the fruit and veggie market I can find it quite overwhelming.

Stall after stall of similar stock, vendors shouting their deals and a strange mix of market aficionados weaving through crowds with their trolleys and bags, and novices, bumping into things as we try to ingest all the information and walk at the same time.

It reminds me of most online retailers – overwhelming those new to the website and designing for those who are already competent. So what can we learn from the behavioural techniques used by grocers to get people to buy?

1. Use a lead item that is desirable

Influencing buyers to select their stall over another is a major hurdle that grocers need to deal with.
All stock looks the same, so price becomes a key criterion (sound familiar to online retailers?). Smart grocers therefore lure shoppers with a lead item, promoting a desirable product at a price that is easy for the buyer to understand. At the moment, mangoes seem to be the carrot (so to speak).

• Grocer A: 3 mangoes for $5
• Grocer B: 2 mangoes for $5

No question that Grocer A is likely to generate more business because the relative value is easy to understand and whilst s/he may take a hit on profits from mangoes, this grocer has won the chance to sell more items to the buyer. In colloquial terms: losing the battle to win the war.

What if you are Grocer B? Should you change your offer? What’s interesting is that Grocer A’s offer is powerful because it is contrasted with Grocer B; if that wasn’t available it would be harder for the buyer to assess its merits. Grocer B has a number of options:

• Match the offer
• Choose another lead item (e.g. nectarines)
• Use a different pricing structure (e.g. promote $2.50 per mango or ‘get two mangoes and a third one free’ so that it is more difficult for buyers to do a direct comparison)
• Bundle the offer (e.g. two mangoes and a punnet of strawberries for $5)

2. Simplify the value assessment

Note that both grocers have used a whole dollar amount ($5) rather than complex number (e.g. $4.99) in this case. Why? In an environment in which there are hundreds of prices displayed, and most per kilogram ($6.99/kg, $3.99, $4.99…) the whole number alleviates the buyer’s burden of calculating value, effectively saying “you don’t have to strain your brain; it’s great value”.

In behavioural terms, the whole number relaxes the buyer and increases confidence that they can successfully manage the transaction.

I’ve also seen this technique used at Coles, where a discounted item is promoted using a whole rather than complex number. For example, yogurt that is normally $6.24 may be marked down to $4 rather than $3.99.

3. Gain commitment

The mangoes not only attract the buyer but commit them to transacting with the vendor. In other words, once the mangoes are in the basket, it becomes hard for the buyer to recant and take their business elsewhere.

A couple of things are happening here:

• They have sunk the cost of their time and effort in queuing up and going through the process of sale. Having committed to doing this with one vendor, the desirability of doing it with another (particularly when the upside is difficult to discern) diminishes.
• We like to think we are good at making decisions. The buyer has given themselves a tick of approval for buying the mangoes and therefore is likely to seek to build on that by continuing to shop in the same stall.

New vs existing customers

As I mentioned, I am a relative newbie to the market and so my attention is soaked up just trying to navigate the environment. I look for simple price cues because my cognitive load is already high.

Experienced market goers on the other hand are familiar with the environment and so have greater capacity to discriminate between vendors, concentrating on micro rather than macro detail. As such, these buyers are more likely to move between stalls, visiting Grocer A for mangoes and Grocer B for potatoes.

It’s pretty clear then that each vendor needs to devise different strategies for new and existing buyers. Where lead items may attract new custom, factors like customer service, stock range and quality become central to retention: the same goes for all types of businesses; online and off.

Lessons from the market

Next time you visit a market, think of it as an analogy for your business. How are you enticing new buyers? Are you making your offer easy to understand? What’s your competitive positioning? How do you gain commitment on a small scale so that it turns into something bigger?

Take a moment to reflect on the behavioural state your buyer is in – are they new or existing? – and how you guide them through the experience of purchase. Are they overwhelmed and looking at the macro level or familiar and more discriminating on micro detail? Most of all; put yourself in the shoes of your buyer and from there you’ll be able to shape an effective behavioural strategy.

This article was first published on December 3, 2012.

Bri Williams runs People Patterns Pty Ltd, a consultancy specialising in the application of behavioural economics to everyday business issues such as financial decision-making, website conversions, marketing effectiveness and change management.