The Decisions We Make About Price
The decisions we make about price have some important lessons for us in selling our products and services, so lets consider a survey question that was asked by two researchers in determining how people make decisions about price.
“Imagine that you were about to purchase a jacket for $125 and a calculator for $15. The calculator salesman informs you that the calculator you wish to buy is on sale for $10 at the other branch of the store located 20 minutes away. Would you make the trip to the other store?”
This question was asked in 1981 when $125 and $10 was appropriate, so accordingly we could rephrase the question to maybe say a jacket worth $300 and a calculator or some computer device worth $150. Now the calculator/computer salesman informs you that the item that you wish to buy is on sale for $120 at another store, would you make the trip?
When this question was asked the majority of people said they would. The question was slightly varied and another group of people was asked. In the different version the jacket was only $15 and the calculator $125 and now the calculator was on sale for $120 at the other store and the question was, “Was that worth the trip?” and most said no.
In both versions of the question the buyer is planning to spend $140 total and the drive saves exactly $5 so why are we more willing to drive across town to save money on a small purchase than a large one? It is this understanding of the behaviour that is driving these pricing decisions that is important for us to understand in pricing the products and services of our business.
Photo by:- Andres Rueda
What are the assumptions?
Whether we are talking politics, business, or life in general ideas are presented, statements are made and often there are underlying assumptions being made. We need to think about what these assumptions are.
For instance the discussion at the moment about the Emission Trading Scheme (ETS) makes the assumption that carbon is the evil greenhouse gas. However this is not universally held and even very authoritative scientists say that the methane may be the real villain. This is not an argument about climate change, rather it is about the assumption that carbon is the evil villain. Now I don’t know who is correct but my point is that assumptions matter. There is much debate about the ETS but the underlying assumption does not seem to be questioned.
Now this is just as applicable in a business context. We could be making decisions about whether a particular strategy or managment idea be implemented but have we considered the underlying assumptions that are implied.
So for instance if you were change the bonus structure (or implement a new bonus scheme) in a business then the assumption is that the financial bonus is the best way to motivate our team to achieve the result. This may be the case but we need to consider whether this correct.
We make assumptions about how customer or employees will behave every day. So in considering a new strategy re-examine the assumptions being made.
So what assumptions are you making in your business?
Photo by laurakgibbs
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