A Tale of Two Beers. Pricing is for Life, not just for Christmas

May 4, 2011   //   by admin   //   Blog  //  No Comments

Do you consider yourself to be logical when you are making a purchasing decision? Most business people rate themselves as logical, but when it comes to buying what you want, chances are that you buy it first and justify it afterwards.

A TALE OF TWO BEERS

Hotel Run down Grocery store
                            Beer     $ ?                              Beer    $ ?

CONSUMERS ARE NOT LOGICAL

Consumers are not logical. We run a number of polls during our pricing workshops that prove this over and over. Studies prove this. Global brands depend on it. If you are in business, remember this and use it well:

People buy emotionally and justify intellectually.

How you frame your prices is therefore very important, as pricing has to appeal to the emotional purchasing impulse of the consumer. Logic doesn’t come into it nearly as much as you might think.

If you are a consumer, it doesn’t matter what is written here, if you want it, you’ll buy it, (if you can at all).

We came across a study cited in Ronald J Baker’s excellent book, Pricing on Purpose. We like to call it “A Tale of Two Beers” see below. It may give you food for thought when defining your brand and framing your prices. Throw away the calculator, for now at least. Read on!

A TALE OF TWO BEERS

Beach Coolbox

 

Imagine the following scene: you are lying on a beach on a hot day … for the past hour you have been thinking about how much you would enjoy an ice-cold bottle of your favourite brand of beer. Your companion gets up to buy a newspaper and offers to bring back a beer from a nearby place where that beer is  sold  – either a fancy resort hotel or a rundown grocery store. He says that the beer might be expensive and asks how much you would be willing to pay for beer. He says he will buy the beer if it costs as much or less than the price you state, but if it costs more than the price you state, he will not buy it. You trust your friend, and there is no chance of bargaining with the bartender or the store owner. What price do you state? The average price stated by those who participated in this US study [ Frank,1998] from the fancy hotel was $2.65 and from the grocery store $1.50. Note that the customer will be drinking the beer on the beach and not entering the hotel or store where the beer was purchased and thus – under the theory of rationality – they should be willing to pay the same amount matter where the beer is ultimately purchased. But most people expressed the feeling that they would rather go thirsty than be ripped off by the grocery store.

Hotel Run down Grocery store
                            Beer $ 1.50                            Beer  $ 2.65

THE PSYCHOLOGY OF PRICING

“A Tale of Two Beers” illustrates the benefit to be gained by a brand that reflects its intrinsic value in its price, and also illustrates a little of the psychology involved. The Wall Street Journal recently published a blog post containing the outcomes of consumer pricing research,  “When 1% is More Appealing than 0%“, which further illustrates that the consumer is not always logical. However, it is clear that not all of the commentators on that blog believe or “get” the research.  As we outlined in “Your Business, Your Price – Do you value YOUR BRAND?” - brand affects price. Positive brand, higher price. Grotty businesses can’t charge high prices. Put away your calculator and review your brand. Before, during and after Christmas. It’s a course of action that might just repay you.

 What do you do to maximise your prices?

Related Posts

Leave a comment

Subscribe Crv

Search

Subscribe Crv
Subscribe Crv

Contact Us

Your Name (required)

Your Email (required)

Phone Number

2+2=? 

Enquiry

Subscribe Crv