Reading a book about pricing isn’t everyone’s idea of a good time. You might imagine that a work covering serious concepts in pricing strategy might be a little dull or unreadable
But Leigh Caldwell’s The Psychology of Price is an effortless read. It offers fascinating insights into human behavior and how it affects our perception of value and price and includes surprising anecdotes. You will learn how your social security number might influence the amount you bid for a bottle of wine, or how an overpriced bowler hat could nudge you into buying a camera.
But for all of its ease of reading, The Psychology of Price covers serious ground that is of real interest to product marketers. Perhaps the two most important concepts for those involved in pricing technology products are anchoring and decoys.
The Psychology of Price
Anchoring enables you to establish the value of a product by creating a reference point in the buyer’s mind, often by creating a significantly more expensive variant of your product that few customers will buy.
“Anchoring is one of the most powerful psychological effects relating to prices. If you show someone a high price first, their expectations about the value of a product will be shifted upwards.”
The Psychology of Price, Leigh Caldwell, 2012, Crimson
Decoys encourage buyers to select a pricing option or, in the case of an asymmetrically dominated decoy, to help you to win against a competitor with different strengths and weaknesses.
We use anchoring and decoys frequently in B2B and B2C SAAS. Reading a few chapters of this book helps relate the “most popular” pricing option on the website to recent cognitive economics research.
Caldwell jumps seamlessly between a fictitious brand of chocolate teapots sold through the even more fictitious Cosanostra Coffee franchise to legal and consulting services and software pricing. Using consumer examples is a helpful and accessible way to introduce concepts to those who may want to apply them in B2B technology.
Helpfully, Caldwell closes each chapter with specific guidance on how to apply the concepts in pricing your products and gives some advice on when the methods work best.
If, after reading this book, you apply any one of the methods, it could make a material difference to your product’s performance.
If you need another reason to buy, it was originally priced at over $200. At the time of writing, it is going for $3.99 on the US Kindle store. Just buy it.
Who Should Read This Book
The Psychology of Price is recommended for marketers of consumer and business products or services, along with anyone interested in understanding the mind games behind grocery store pricing.
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