Book Review - The Psychology of Price: How to use price to increase demand, profit and customer satisfaction
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The Psychology of Price: How to use price to increase demand, profit and customer satisfaction
Book Author: Leigh Caldwell.
The Psychology of Price , explains the science behind pricing and includes practical advice on pricing strategies and techniques that can be instantly applied, as well as expert recommendations to help businesses understand consumer behaviour and reach higher sales.
The Psychology of Price is one of the books selected from The Ultimate List of Great Books on Pricing we have compiled. Pick up a book or two - to help you charge the right price for your products or services.
Continue reading through our review for The Psychology of Price below!
The following are the key concepts introduced by Caldwell in The Psychology of Price:
Pricing is one of the most important decisions businesses should get right. However, a great majority of people make these decisions based on guesswork, without understanding how the price affects their customers and how it changes the perception of their business. Leigh Caldwell brings together Psychology research, business insights and behavioural economics, providing a guide to help you set the price that will earn the highest profits for your company.
This book describes how price simplifies our decisions and the psychological pricing strategies that businesses can adopt to influence a buyer’s decision.
For example, this book provides the answers to the following questions: Should you increase your product price?, or include an expensive product into an assortment?, and by how much will your sales increase if you do so. It includes practical examples as well as the theories, such as, should your prices be ended with 0.99? what was the most outrageous price charged in history? And How can you use psychological pricing techniques to negotiate a better deal?
It describes how information is complicated, and therefore price is an important piece of information in your decision process. Price should be tangible, and customers should be able to see what they pay of as well as compare the price on the terms under your control. Moreover, if you wish to change prices The Psychology of Price explains why and how you should reframe your product.
It also describes the importance of price differentiation, as a key enabler of profit, to target a wider audience with different budgets, and how price communication shapes your customers perception of value.
The following are some of the key Psychological Pricing Strategies introduced by Leigh in The Psychology of Price:
- Price Anchoring: By signaling a higher price first, The standard price will look like a great deal when compared to the previous price or that of a competitor. However, a con to this strategy is if consumers only see your higher price, they might position you as too high and bounce. It is essential that the higher price is not the first thing a customer sees.
- Price Discrimination: By charging different prices to different groups of people you can capture the maximum money out of each customer; however, people might not feel as if they’re treated fairly and might not return.
- Pricing Discounts /Sales: By holding discounts whereby items are close to the original price, you are creating a different form of anchoring, that improves perceived value but can also affect consumers trust in your company.
- Hyperbolic Discounting: Monthly repayments for example, ease the pain of paying a huge amount upfront. However, a consumer might cancel subscriptions.
- The Compromise Effect: By having higher and lower prices you can tempt users to the middle product. However, this might increase the average price pay and therefore, the value perception placed on your brand/product might be lowered.
Leigh Caldwell concludes that the key to choosing what pricing strategy suits your company or product best is to test them all! This book not only includes practical examples and theories. It is a guidebook to understanding your customers desires, how to fulfill them and how to use the strategies described above.
ABOUT THE AUTHOR: Leigh Caldwell
Leigh Caldwell is a leading pricing Psychologist and the author of The Psychology of Price. During his numerous international business experiences, and doing business with numerous clients , one of the key problems he was faced with was pricing. Starting off as a mathematician and furthering his studies in psychology and behavioural economics, he has explored different pricing methods by combining economics and psychology, studying the value that people place on things, money they are willing to pay and what influences them. He now runs an academic research blog called Pricing Revolution (http://www.pricingrevolution.com/) , He works as CEO at a Inon, a pricing software and advices clients globally on their pricing strategies.