Context is always more important than price

This post has been on what I’d call “high rotation” on LinkedIn. Perhaps you’ve seen it…?

Most readers will think about a post like this from the perspective of their own purchasing decision: it’s cheaper for me to buy coke from a supermarket than it is for me to buy it on a plane.

What coke is capitalising on here is a finding from Richard Thaler, who won the 2017 Nobel Prize in Economics for his work on Behavioural Economics. The Coke post above is just a replication of his famous “Beer on the Beach” experiment, where he found that people were prepared to pay more for a cold beer purchased from a five start hotel at one end of the beach, vis-a-viz the same cold beer from a run-down grocery store at the other end of the beach.

It most circumstances, charging a higher price for one product over another requires a company to vary the product in one way or another. Airlines are a classic example: price varies by the level of service across economy, business and first class cabins. Hotels (rooms) and car rental companies (make & model) do the same thing.

So how can Coke, or a beer company, charge different prices for an identical rather than a differentiated product? The answer is context.

Several years ago, I assisted a company with its pricing strategy. For reasons of anonymity, let’s just call them “The Smash House”. You might have heard of places like it: you book a time, go in, and let off some steam by smashing “stuff” with a baseball bat.

Pricing the time slots was easy: earlier in the week was quiet (so prices were cheaper), while times later in the week were in higher demand (hence premium prices). All bookings included a box of crockery (or similar) to smash, or you could bring-your own: old TV’s and, believe it or not, photocopies, were popular. Extra “smashables” could also be ordered at the time of booking.

But here’s the “contextual pricing kicker”. I suggested a laminated price list of extra “smashables” be placed in the Smash House, at premium prices relative to the price at the time of booking. And it worked. In the heat of the moment (i.e., the context), customer’s smashed their pre-booked (or BYO) crockery and screamed “give me more, give me more!”.

Remember: Context is always more important than price.