VTEX Blog - VTEX Platform AB testing case study: installments or total price? What drove purchases?

VTEX Platform AB testing case study: installments or total price? What drove purchases?

Alexandre Soncini
Alexandre
25 Aug 2016
Reading Time: 4 min

Background:

With the 2016 Rio Summer Olympics successfully closing, Brazil is on everybody’s mind. While we’re all talking about who won gold, far fewer are analyzing who’s buying gold.

But, this question is of utmost importance to Brazilian jewelry retailer Joias Gold. With Brazil in a deep economic recession, according to the World Bank, luxury items, like gold rings and necklaces, have become a tough sell. The jewelry company has had to seriously innovate to keep up sales. With the help of Brazilian digital marketing agency, Corebiz, focus has been put on web optimization and catering to the experience customers have on-site. One attempt to meet customers’ needs has been by evaluating pricing strategies. Since the Brazilian economy is a little rough right now, Corebiz’s testing team wondered whether most people preferred paying for purchases in one lump sum, or monthly installments.

To find out, the team analyzed 10 months of Joias Gold’s customer purchase history. They learned that far more customers paid in monthly installments — rather than lump-sum payments. Based on this data, the team suspected product purchases would increase if it was clearly communicated that customers could pay through monthly installments.

Hypothesis:

The team hypothesized removing the total price field – and instead featuring the monthly installment option – would increase product purchases.

Test Set-up:

To test, the team created two different add-to-cart pages. The first featured the total price, prominently displayed in large black text. The monthly installment option was listed underneath in small green text. The page looked like this:

All the difference in version B came with one subtle, yet significant change: the total price information was removed. Corebiz replaced it with monthly installment information–which was featured in large green text. The page appeared like this:

Test Set-Up: To determine how displayed pricing information impacted purchases, web visitors were directed to one of the two versions; traffic was split 80/20.

The Real-Life Results:

As expected, emphasizing the monthly installment option cashed in as the big winner.

Compared to the version with the total price listed, the variant featuring just the monthly installment won in all respects.

It lifted the following:

  • Engagement by 1.6%
  • Clicks on the buy button by 17.6%
  • Number of purchases by 57.4%
  • Total Revenue by 825.7% — and no– that’s not a typo!

Talk about incredible results! A more complete breakdown can be seen here:

Analysis:

According to marketing research analyst Nick Kolenda, when people evaluate purchase cost, they either consciously or subconsciously generate a “reference price.”

This research paper defines “reference price” as the amount the customers expect to pay for a particular product.

Reference prices are based on factors like similar past purchases or competitor prices. In order for people to see your price as low, it needs to be perceived as cheaper than the reference price.

Breaking the total price into monthly installments is one technique to help prospective customers perceive purchase price as less intimidating. Parsing the price into pieces certainly worked in this case. But, that may have been because of the audience. Because Brazil is experiencing tougher economic times, most customers likely felt they didn’t have enough money to dish out a large payment in one lump sum. So, they preferred paying in monthly installments.

The same may not be true for your customers or product. Depending on what you’re selling, your customers may just want to make a one-time purchase and move on. So, before implementing any pricing scheme, dig deep into your audience demographics. In addition to segmenting by device, gender and location, ask yourself questions like:

  • What are my customers’ typical buying patterns?
  • Are they choosing monthly installments over flat-out purchases?
  • On average, how much are my customers likely to spend at one time?

Based on these answers, you may find featuring monthly installments makes more sense. Or, you may learn giving an installment option works against you. Also, remember, your customers are savvy. They’ll probably catch on if you use monthly installments to trick them into thinking your product is cheaper than it really is.

When making a big purchase, many consumers like to know the total cost upfront. And, will appreciate having enough information to make an informed decision. Hiding important details can create distrust. As some research shows, trust is a crucial element for conversions.

The ultimate take away: if you can make something look less expensive than it is — do it. But, not if it comes at the expense or creating wary customers that don’t trust you.