The Psychology of Price by Leigh Caldwell

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The 7 principles of pricing

1. Pricing should be based on value to customer

2. Prices should be tangible, so your customers can see what they get for what they pay

3. Prices should be comparable—on terms that you control

4. If you want to change prices, you must re-frame the service or product

5. Price differentiation is the key enabler of profit

6. Pricing communication shapes the perception of value

7. You must be prepared to lose some sales in order to increase profits

Whichever products we most closely associate a new purchase with are the ones we are likely to use as a price guideline.

The price of oil is the most important single price in history. It has been the driver of much of political and economic history. The high oil prices in the 1970s led to skirmishes in West Asia and to the fall of Keynesian economics.

The price of gold was of huge significance. The price of gold, legally defined as $20.67 per ounce in the USA till the 1930s, limited the number of dollars or pounds that a government could issue. Most economists believe that the gold standard and resulting lack of monetary flexibility led to the Great Depression.

Distributors and resellers think differently from consumers.

If possible avoid a straight price cut in response to competition. This creates a race to the bottom in which nobody can make profit.

Free

‘Free’ is almost a magic word. It transforms the consumer’s decision context from the default position of having to balance trade-offs to one where there is no decision to make.

Free products increase the urgency of a purchase. There are 36 pricing models

Published on November 03, 2016

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