Purchase Decision Process: Sell More by Understanding Your Customers
Consumers make countless purchase decisions on what to (and not to) buy on a daily basis. Behind these decisions lies a complex process shaped by various psychological, emotional, and practical factors.
Each purchase decision process is an online retailer’s opportunity to meet the consumers when they are ready to buy. Some retailers do this by sending scheduled newsletters, some have limited-time offers, some invest heavily into their branding campaigns, some combine all of these approaches, and others do something completely different.
Among all these tactics, there’s one parameter that proves to be significantly more influential than others. We are talking about pricing.
Let’s first take a look at how the purchase decision process looks and then see what role pricing plays within it.
Purchase decision process
The purchase decision process is a series of both emotional and rational steps that lead up to a purchase. It is not a straightforward process and can end in a successful purchase, giving up on the purchase decision, pivoting towards a different option, and postponing the decision.
The purchase decision process has 5 key steps:
- Need recognition – a consumer realizes they have a need or a problem that needs to be solved. This realization can come internally (i.e. from within; e.g. feeling hunger) or externally (i.e. by an external stimuli, such as an advertisement).
- Information search – a consumer educates themselves about the issue. This step can also be internal or external. Internal information search refers to drawing from past experiences. External information search refers to asking friends, reading online reviews and blogs, or even visiting stores.
- Evaluation of alternatives – at this step, the potential solutions for the consumer’s need have been shortlisted, and their comparison begins. As we will soon see, one of the most important factors consumers use to evaluate products on is pricing. Besides that, there’s quality, features, and brand reputation.
- Purchase decision – after some consideration, the customer makes a purchasing decision. However, a crucial thing to note is that there’s still room for influencing it. Well-timed promotions, discounts, and recommendations from trusted sources play a crucial role in this step.
- Post-purchase evaluation – the evaluation of the decision to purchase a particular product. It can be satisfactory, potentially leading to repeated purchases or recommendations. On the other hand, it can also be unsatisfactory, leading to buyer’s remorse, frustration, and potentially bad reviews.
NOTE: Don’t be confused by the fact that step 4 of this process is also called ‘purchase decision’. The overall process may be referred to as the purchasing decision process, buying decision process, or buyer’s decision process.
It’s important to understand that budgetary/pricing considerations are present in every step of this process. Particularly so in the second, third and especially the fourth step.
Let’s now take an in-depth look into what role pricing plays in consumers’ purchasing decision process.
The role of pricing in purchase decisions
Prices impact the customer’s purchase decision process at all the stages of their journey. Pricing considerations are present throughout all the parts of the purchasing funnel—top, middle, and bottom. Sellers need to understand the fact that the customer’s purchase decisions aren’t linear and, at times, logical.
Instead of trying to track the exact steps of your customers and looking at this process strictly sequentially, try to understand it from a broader perspective. Let’s take a look at some of the most important concepts that will help you do just that.
Price elasticity
One of the most important concepts when considering the role of pricing within a purchase decision process is price elasticity.
In the context of purchasing decisions, price elasticity helps you understand how customers will react to price changes. Additionally, it tells us for which product categories customers may be ready to tolerate higher price hikes. And also vice versa, it tells us for which products drops in prices won’t lead to more purchases.
For example, medication products are considered to be inelastic because despite price increases, customers will keep buying those products. Why? The answer lies in the fact that these products may not have substitutes and that customers feel a sense of security when purchasing from certain brands.
An example of a product with elastic demand is smartphone accessories (e.g., phone cases). These products are rarely considered essential. They also have a significant number of substitutes. This is why, when a price increase occurs a large majority of customers may turn towards cheaper substitutes.
Perceived value & price perception – price as a signal of quality
Aside from price elasticity, value & price perception are equally important in the purchase decision process.
Price is often seen as a proxy for quality. In the basic sense, this means that customers tend to correlate higher prices with higher quality and vice versa.
What does this mean for customers’ purchasing decisions?
The answer depends on what customer segment and product category we are talking about.
Let’s say a content creator is in the market for a new graphics card because they need it for video editing purposes. The abundance of options, combined with convoluted product names, makes choosing the right one difficult, to say the least. Delving into the technical specifications can significantly add to the confusion. This is why it’s easy to understand why this person may look at the price as the primary signal of quality.
Another example would be a shopper in a clothing store looking for a new winter coat. There are two options: one is a $50 coat from a generic brand, and the other is a $200 coat from a luxury brand. Although both coats may offer similar warmth and functionality, the shopper may perceive the luxury brand’s coat as significantly better in quality due to its higher price. This perception leads them to believe the expensive coat is more durable, stylish, and overall a better investment, even though the cheaper option would serve the same purpose.
Psychological aspects of pricing within the purchase decision process
A decision to purchase something is ultimately a psychological one.
A purchase decision breakpoint may come down to how, when, and where your products and prices are shown.
Let’s go over some of the most notable psychological pricing tactics that help nudge customers toward a purchase on your website.
- Charm pricing – prices ending in ‘.99’, ‘.95’, or ‘.90’ often feel like a better deal, even if the difference is just a few cents. This tactic plays on the consumer’s perception of getting more value for a lower price.
- Price anchoring – consumers tend to rely on the first piece of information they see. This first piece of information is referred to as the “anchor”. The anchor then influences the perception of subsequent prices of the same product. This means that discounts may get increasingly more perceived as a bargain.
- Limited-time offers – when a deal is presented as being available for a short time, it creates urgency. Customers are more likely to act quickly, fearing they might miss out on the discount or special offer.
- Product bundling – offering products together at a discounted price can make customers feel they are getting more value. For example, a “buy one, get one 50% off” deal makes consumers feel like they’re getting a better deal, even if the price is similar to buying each item separately.
These tactics play on common psychological biases that affect how consumers perceive value and make purchasing decisions.
If you understand both your customers and these tactics you will be able to meet your customers at just the right moment of their purchasing journey. This will help you nudge them toward the positive purchasing decision and improve your conversion rates significantly.
Conclusion
We have seen that the purchase decision process is not straightforward. There is a lot of back-and-forth going on. Trying to understand it as an online retailer can be cumbersome. What is true now may not be true tomorrow.
However, there are some aspects of it that are more stable than others. This is especially true for some pricing principles we have mentioned above. To underline, the most important aspects you should focus on are:
- Using psychological pricing tactics
- Knowing price elasticity for the products you are selling (and for the customers you are selling to)
- Nail down your timing
- Monitor competitors
With the right pricing strategy, you can create more compelling offers and build long-term relationships with your customers. While pricing is just one part of the equation, when done right, it can lead to happier customers and stronger sales. Keep experimenting and refining your approach, and you’ll likely see positive results.
