January 13, 2010
Consumers are watching their spending, which means marketers must find creative ways to appeal to cost-conscious buyers without hurting their own bottom lines. One marketing team found a solution in the work of a behavioral economist.
Read how they adapted a psychological experiment about the impact of arbitrary price benchmarks on a consumer’s spending habits. They created a "budget" shopping guide that included useful tips on assembling an inexpensive party, but featured a total price point higher than the typical customer’s party spending. The result: a 35% increase in average order value.
Last year, Laurie Wrigley, Founder, Birthday in a Box, could tell the recession was weighing on the minds of consumers. They were receiving inquiries from customers on how to host affordable children’s parties.
"We were talking about the economy last year, [discussing] what we could do to address visitors’ concerns about trying to throw reasonably priced parties," Wrigley says.
The team wanted to help customers, but they did not want to hurt sales figures. They needed a marketing strategy that addressed customers’ budget concerns, but also helped them increase their average order values.
Wrigley recalled a radio program she heard earlier that year that described a psychological experiment involving money. In the experiment, consumers who participated in an auction for common products were willing to spend more on those items if they previously had been exposed to higher price benchmarks.
They decided to test this concept by combining an arbitrary price point with a shopping guide.
Here are the four steps they followed:
Step #1. Review the pricing experiment
A February 2009 National Public Radio report (podcast linked below) featured behavioral economist Dan Ariely describing his work.
In one experiment, Ariely asked college students to write down the last two digits of their social security numbers. The students then went through a list of products, writing down if they’d be willing to pay the dollar amount of the two digits for each.
For example, if the participant’s last two digits were 81, they were asked if they’d pay $81 for a certain book, a bottle of wine, etc.
Next, they held an auction in which the students bid and paid real dollars for the same products.
"What he found was that the people whose social security numbers ended in higher numbers placed bids that were 216%-346% higher than those that ended in with the lowest numbers," Wrigley says.
Ariely’s conclusion: Contemplating whether they were willing to spend that amount on a product created a benchmark in the subjects' minds. The higher the benchmark, the more the subjects were willing to spend.
Wrigley found the podcast compelling and decided to buy Ariely’s book, "Predictably Irrational," to learn more. What she read convinced her to test whether setting a higher arbitrary budget for customers to consider -- without actually changing product prices -- could increase average order values.
Step #2. Create a party planning article with arbitrary budget
The team has several content-based webpages describing topics, including tips and tricks for running a children’s party.
They created a new page headlined "Parties Under $100" which included:
o Ideas for saving on food, invitations, decorations, other costs
o Links to moderately-priced products with their prices
o A sample shopping list for a party under $100
o A link to a free party budget estimator spreadsheet
"Many parents of children ages one to five don’t yet have a clear expectation of what it might cost for a birthday," Wrigley says.
- Set budget well above AOV
Keeping true to the experiment, the team wanted customers to consider a price point above what most customers typically spent. In this case, the $100 budget was well above customers’ average order value, Wrigley says.
Step #3. Link to page throughout site
The team added the "Parties Under $100" page to their website and linked to it from three key areas:
They placed a button-sized display ad of two piggy banks and the headline "Parties Under $100" on the homepage.
"One of the first things that people saw when they came in was this headline," Wrigley says.
- Sale page
The team maintains a sale portion of its website. They placed a display ad with the same piggy banks on this page. This ad emphasized "parties on a budget" rather than "parties under $100."
- Content page
The team also hosts other types of party guides on the site, including a "Tips and Tricks" section. At the bottom of this page they added a simple hyperlink, "Plan a party under $100" that linked to party planning guide.
Step #4. Promote the new planning guide
The team used the following two efforts to promote the new guide:
The team sent a single email to its database for this strategy. It included:
o Subject line: "Plan a Party Under $100"
o Headline: "Plan a Party on a Budget"
o A large image, of a woman and a child with a piggy bank and party favors, hyperlinked to the party planning page.
- Paid search
The team also bid on pay-per-click keywords to serve advertising in search engines. The ads’ links pointed to the party planning guide page.
The team bid on approximately 62 phrases, such as:
o "birthday parties on a budget"
o "children’s parties under 100"
o "inexpensive kids party ideas"
o "theme parties on a budget"
"Setting this expectation really did seem to influence the price...It surprised me that it worked, actually," Wrigley says. "We didn’t change any product prices, but I think as long as customers stayed under the $100 expectation, they were inclined to add more items."
Although the page received less than 3% of the team’s total site traffic, visitors to the page were shown to have a:
o 38% higher conversion rate than the overall site average
o 35% higher average order value
The team is so impressed with the results that they’ve shared the tactic with their affiliate marketers -- one of their strongest marketing channels. Some affiliates have taken the lessons and the content to create their own versions of the "under $100" guide, Wrigley says.
Useful links related to this article
Creative Samples from Birthday in a Box’s budget shopping guide campaign
Revamped Recommendations Lift Order Value 15%: 5 Steps to More Relevant Suggestions
National Public Radio: Dissecting People’s ‘Predictably Irrational’ Behavior
Birthday in a Box