The weird world of pricing psychology

I once asked an expert on corporate fund raising to nominate the biggest mistake made by organisations approaching wealthy individuals for donations.  The answer might surprise you.

His response: They don’t ask for enough.

Okay so there are some high net-worth individuals who are your typical tight-arse types: reluctant to part with their hard earned cash.  But it you think about it, the answer is quite logical.  The people we are talking about don’t exactly need the money and the question is pretty loaded: How much are you prepared to give? Actually that’s not the question.  The deeper and implied question is: How much are you worth?   The context of this transaction is an individual declaring: I’ve made a pile of cash and I can afford to give you a big chunk of it without even wincing.

 The psychology of price setting is one of those elements of marketing that fascinates me most.  As a kid growing up I remember TV commercials for K-Tel records.   The Hottest Hits of 1979 for $3.99.  Over the years the digit dollar figure increased, but the 99 cents on the end was a constant.   Who were they kidding? We all knew it was four bucks, but clearly they’d worked out that consumers were more likely to buy based on the notion the price was in the $3 dollar range.

The other day I heard of an Australian exporter who’d been trying for years to crack the market fine wine in Asia.  He tried all sorts of differing strategies to capture the imagination of his target market: wealthy consumers with a taste for the finer things in life.  Then he worked it out.  Triple the price.  Yep, the problem with his wine in the minds of the emerging rich was that it was too cheap!  I laughed and then reflected on the fact that, being largely ignorant, I base my own wine buying decisions on assuming any bottle of cabernet merlot priced over $30 must be pretty good - while anything in the $10 barrel must mineral turps with a shot of vinegar for extra flavour.

The truth about pricing is that any commodity or service is worth what someone is willing to pay for it.   Or, sometimes, what they want to pay for it.  The woman who displays her Armani handbag and proudly declares that it costs her a whole weeks wages is proof of that.  Would she do the same for the $20 number for K-mart? 

Yes, of course, price does matter – in some market categories it’s the ONLY thing that matters. But never assume it is just about the price.  Value is what ultimately matters most. And, value, like beauty, is ultimately in the eye of the beholder.  It’s enough to drive you to drink…a nice merlot thanks Jeeves!  From the top shelf, of course.