Pricing Psychology: Behavioural Economics and New Economic Models by Leigh Caldwell at Chinwag Psych
A company's choice of pricing can create a psychological response in its customers, but how can businesses choose the best pricing tactics to create a positive response, maximising customer satisfaction and profits. “Psychology of Price” author, Leigh Caldwell uses a nuanced understanding of psychology to unlock the potential of behavioural economics that can provide new models for business.
Published on: Mar 4, 2016
Transcripts - Pricing Psychology: Behavioural Economics and New Economic Models by Leigh Caldwell at Chinwag Psych
£5.99 £7.99 0 50 100 Total revenue: £619
How should this shop increase its proﬁts? a) Decrease the price of the £5.99 boCle? b) Decrease the price of the £7.99 boCle? c) Increase both prices? d) Round them up to £6 and £8? e) Oﬀer 10% oﬀ if you buy three? f) Something else?
0 50 100 £5.99 £7.99 Total revenue: £809 31% up! £14.99 0 50 100 Total revenue: £619
Time given up to be here Cost of travel Cost of food Beneﬁts of new knowledge Day out of the oﬃce Fun talks People I might meet -‐ networking Boring talks Possibility of TSB funding Could ﬁnd a new job SiZng in a chair all day Hot women Hot men £199
Price is an arﬁcial neatener
• The same sofa that I’d pay £1199 for • I’ll pay £59.99 a month for 36 months • A total of £2159.64
THE 7 PRINCIPLES OF PRICINGPricing should be based on thevalue to the customer,not the cost to you11 copy of PowerPoint – what is it worth?
THE 7 PRINCIPLES OF PRICINGPrices should be tangible,so your customers can see whatthey get for what they pay2App vs. website: “what am I getting?”A bird in the hand etc…
THE 7 PRINCIPLES OF PRICINGThe positioning of the productmakes a huge difference to howmuch people will pay for it
THE 7 PRINCIPLES OF PRICINGPrices should be comparable(on terms that you control)3How much is something really worth?Make your product seem like a good deal bychoosing the right comparison point.Nescafe instant £2.49 Lavazza coﬀee £3.49 Starbucks la<e £2.55 vs. vs.
THE 7 PRINCIPLES OF PRICINGIf you want to change yourprices, you mustreframe the product4What’s included?
THE 7 PRINCIPLES OF PRICINGPrice differentiation is thekey enabler of profit5Horses for courses – different people have differentbudgets.To maximise profits, have something for everyoneand let people tell you what they want.
THE 7 PRINCIPLES OF PRICINGPricing communicationshapes the customer’sperception of value6There’s no absolute value – the way you talk aboutthe product and its price will set expectations
THE 7 PRINCIPLES OF PRICINGYou must be prepared tolose some sales in orderto increase profits7Accept that some of your customers won‘t come with you….but its still worth it.
The seven principles 1. Pricing should be based on value, not cost 2. Prices should be tangible 3. Prices should be comparable 4. To change your prices, you must reframe 5. Price diﬀerenaon is the key enabler of proﬁt 6. Pricing communicaon shapes the customer’s percepon of value 7. You must be prepared to lose some sales
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