Sunday, 20 February 2011

Relative Pricing: are we in control?

I watched a great speech given by Dan Ariely at a TED conference back in 2008. He talked about a topic that’s close to my heart: relative pricing. Dan has written a couple of books on behavioural economics. In this particular conference, he talks about pricing strategies and consumer behaviour and draws a couple of great points:

First, that we, as humans, cannot cope with multiple pieces of information when making a decision, and the more we get the worse our decision making.

Second, when making decisions around purchasing, we tend to create views on a item’s value relative to what else is on offer, rather than the inherent value against the money charged. When you look around the commercial world, you would agree that certainly this is not a new tactic. Super-size me portions, mobile bundles, positions of certain wines within the wine list etc. all play to consumer behaviour around how we make relative purchasing decisions and the somewhat irrationality around how we get there.

Dan highlights this superbly in a test he did on The Economist subscription pricing. I won’t give the whole thing away but watch the speech. He’s a great speaker and the topic is fascinating. Would be interested on other examples you find on behavioural pricing.

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