How good are you at pricing? How often do you think about how you are pricing your goods and services? Probably not often enough and certainly not as often as is best practice. If you haven’t noticed, pricing has got a whole lot more sophisticated and moved on immeasurably from the relative simplicity of train fares costing more at peak times.
Just to get you thinking about price, let’s start with senior citizen discounts. Mull them over for a second and before long I’ll wager you’ll query whether such discounts based solely on age should apply to all, especially when you consider the median income of UK pensioners at £394 per week is now higher than the median income of the rest of the population at £385 per week (October 2015, Institute for Fiscal Studies ). This is an example of generalised price discrimination that, on reflection, seems a little “unfair”.
Consumers perception of “fairness” in pricing is hugely important. We are turned off companies if we perceive the price we have paid is unfair, for example, apparently, the price you pay for app purchases from a Safari browser can be higher than the price paid for the same app purchases from a Firefox browser. Now it doesn’t take a genius to work out what generalised assumption is behind this and I find that pretty annoying, even if it is true.
If I am paying a different price for the same product I want that price difference to be justified, I want to feel it is fair and, better yet, I’d like to feel it is to my advantage. On that last point, there are some creative geniuses out there doing some extraordinary good pricing promotions that customers love. Enjoy the simplicity of the transparent and fair pricing achieved by New Zealand Airlines auctions for upgrades New Zealand Upgrades and see how Starbucks ’snooze button’ app Starbucks snooze resonates. Intriguingly, the Starbucks idea wasn’t actually made by or taken up by Starbucks but, regardless, I love it.
What I don’t want to feel is taken advantage of. Did you know that Mattel’s “Barbie I can be” apparently costs a different amount depending on which career Barbie you choose? They are tapping into parent aspiration because we’d prefer to buy Vet Barbie than Hairdresser Barbie for our daughters so we are prepared to pay more for her. Well, yes, but really? Similarly, let’s talk Pink Tax and whilst I’ve never really complained about paying more for clothes and toiletries, now that it has been pointed out to me that sometimes I pay more for exactly the same thing, let’s use the example that it generally costs more to dry clean a woman’s blouse than a man’s shirt, I am incensed.
So should prices perfectly mirror our willingness to pay for something? This is where we are going with technology, towards ever more personalised pricing. Well, I do want this, but only sort of, because there is a very fine line between understanding how much I am willing to pay for something and how much I would like to pay for it. Psychologically, I love getting what I perceive to be a bargain; I feel a little sense of joy and I get a bounce in my step. But here’s the thing, I think best practice pricing in the future will know this about me as academics like Marco Bertini are researching the human psychology of pricing in such depth that it is entirely possible my preference for getting a bargain will feature in my personalised pricing profile. I’m reminded of dog training here (keep with me!) as you’ll get a dog to come back to you if occasionally you provide a huge treat, unpredictably, when they do so.
Winston Churchill said, “the price of greatness is responsibility” which led me to my title because if I change the words a little I get “with great prices comes responsibility”. The data is there to analyse the heck out of individuals purchasing decisions but the winners will be those companies that add a dose of psychology to the mix when they price. None of us like being second-guessed all the time, so please companies surprise and delight me with your creativity in pricing and be responsible with my data because if you annoy me, I won’t be buying unless, of course, you’ve deceived me, but that’s a whole other story.