The 5 strategic questions to design optimal price points and promotions. By learning about the psychology of pricing, you can leverage this to your advantage, whether on the customer or the supplier side.
Das Narayandas, Professor at Harvard Business School, recently told me:
Pricing is the moment of truth
100% of your revenues depend on your pricing, no matter what.
By learning about the psychology of pricing, you can leverage this to your advantage, whether on the customer or the supplier side.
After all is said and done, pricing is when the proposition of any product or service is tested against the customers’ willingness to pay. Or, as I prefer to think, the customers’ tolerance to pay.
Paying for something is literally painful, as neuroscience suggests that the areas of the brain associated with loss and sorrow fire up when assessing pricing.
Paying equals parting with something, from a psychology point of view, which is why credit cards have you spend more as you feel the parting less.
How can you address the key pricing-related questions effectively?
Our brain is not capable of making a quantitative pricing assessment in absolute terms: the best it can do is to make a relative assessment in relation to something else.
In some circumstances it can be advantageous to create discounts, even if manufactured, in order to push sales from a psychology point of view.
Let me show you an example:
Expedia displays manufactured discounts
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