Confessions of the Pricing Man: How Price Affects Everything

They say that they find it easy to cut prices if they set them too high, but very difficult to raise them if they set them too low. And they think that this is enough for a pricing policy . It does not seem to have occurred to them that the wrong price impairs market and market share . Yet these people enjoy the reputation of most successful market

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.

In former socialist economies, scarcity was an everyday occurrence. Lines were everywhere. People bought whatever they could get their hands on. One never knew what might happen.

So I went to the home improvement store and found a large assortment of locks, priced in a range of $4–$12. What did I do? On the one hand, I didn’t require a high level of security which would warrant the purchase of one of the expensive locks. On the other hand, I didn’t trust the quality of the cheaper locks. So I chose one from the middle of th

Namely, you need to make sure that the two other drivers of profit—costs and volume —are managed well. If you have high costs, a high price does not guarantee a high profit margin . A high margin results only in high profit if you achieve a sufficient gap between price and costs.

David Ogilvy: “Pricing is guesswork. It is usually assumed that marketers use scientific methods to determine the price of their products. Nothing could be further from the truth. In almost every case, the process of decision is one of guesswork.”

Are there risks in doing this? Yes! If the potential buyer s with a willingness to pay $120 or more find a way to get the product at $90, our profits will look a lot worse than if we had a uniform price of $105.

higher value to customer which supports higher prices.

Overcapacity is typical as a market enters its mature phase, as companies overestimate growth potential, and also typical for a market’s decline phase, which companies often do not anticipate. Even emerging markets can get to a state of excess capacity relatively quickly.

The problem is that it only takes one self-destructive competitor to render an entire industry self-destructive. That’s why it is better to have smart competitors.