Confessions of the Pricing Man: How Price Affects Everything

price threshold is a price point which triggers a pronounced change in sales whenever it is crossed. You might think of a price threshold as a kink in the demand curve . This price-threshold effect normally happens at round price points, such as $1, $5, $10, or $100. That is why many prices lie just under those thresholds, very often ending in a 9.

“We’re getting out of the junk business, like employee pricing sales that boost market share but destroy residual values. It’s better to sell fewer cars at higher margins than more cars at lower margins. Selling five million vehicles at zero profit isn’t as good a proposition as selling four million vehicles at a profit.”

The anchor effect created by the $900 model drew the buyer’s willingness to pay upward. Even if the store never sells even one $900 suitcase, it makes sense to keep it in the assortment, purely because of the anchor effect it creates.

The impression of consumers that a product is available only in limited supply can create a stronger urge to buy.

Premium pricers invest heavily in communication: They know that they have to make the value and advantages of their products perceptible and understandable to consumers. Remember: only perceived value counts.

“No one can make any money in our business. Every single company has too much capacity. Every time a project comes up for bid, someone needs it desperately and offers suicidal prices. Sometimes it’s us, sometimes it’s a competitor . Even though four suppliers make up 80 % of the global market in our business, no one makes any money.”

For premium and luxury goods, one needs to know whether such prestige effect s exist and whether the demand curve has a part which slopes upward. If it does, the optimal price never lies in that portion of the demand curve. It always lies higher, in the part where the curve slopes downward again. This reinforces a key lesson in this book: you need

They have little debt: Only very rarely do they turn to banks or debt markets for financing. Instead they rely on self-financing or supplier credit. 8. They control as much as they possibly can: This means they carry only their own brands (Dell , Ryanair , IKEA ); even Aldi ’s assortment is over 90 % private label. They also exercise strong control

Multi-person pricing means setting a price for groups of people. The total price will vary by the number of people. Travel agents make offers which allow partners or children to travel at reduced prices or for free. Airlines sometimes will let a second guest or a partner fly at half-price or free. Some restaurants will charge half-price for a dish

Not the demand level as such is relevant for optimal dynamic pricing ; it is the way customers respond to different prices at different times, in other words: the price elasticity . Unless you know it you are just fishing in muddy waters.