Pricing Prophets – Making Pricing Profitable Pricing Myths 1 and 2 - Pricing Prophets

Pricing Myths 1 and 2

The book “Overcoming Floccinaucinihilipilification: Valuing and Monetizing Products and Services” has been available for twelve months now. To celebrate the first anniversary of publication, Chapter 2 of the book will be serialized, revealing nine myths that surround pricing. In this blog post, you can read about Pricing Myth Number 1 and Number 2…

Pricing Myths: There’s no such thing as the prefect price

No consultant, software package or book (even this one) can tell you the “perfect price” for your product or service. There’s a good reason for this: the perfect price differs from customer to customer, from time to time and from location to location. The existence of a one-size-fits-all perfect price is just one of many myths that surround pricing.

Myth #1: The myth of full price

One of the standout observations in Mark Ellwood’s excellent 2013 book Bargain Fever: How to Shop in a Discounted World is “How do you make money when full price is no longer guaranteed?”

People not only love the “thrill of the chase” (finding a heavily discounted product), they also love the “thrill of the kill” (actually buying the product at that heavily discounted price), which gives them bragging rights.

Very few people pay full price (or rack rate) for a product or service. To paraphrase Rory Sutherland in his 2019 book Alchemy: The Surprising Power of Ideas that Don’t Make Sense, “You don’t get a dopamine rush from paying full price.” Pricing is a negotiation not a surrender, which means – now, more than ever – that discounting needs to be an integral and strategically managed component of a pricing strategy.

Myth #2: Stealth price increases are a thing of the past

It wasn’t too long ago that price changes were pretty easy. As long as the increase wasn’t more than the prevailing rate of inflation, a price change didn’t appear on the customers radar.

Today, it’s another story. In 2011, when Netflix tried to quietly separate their DVD rental and streaming subscriptions, the Mercury News reported that:

“The comments section on Netflix’s own blog entry about its price change hit the maximum of 5,000 posts. On Netflix’s Facebook page, members posted 53,000 – and counting – responses. And on Twitter, “Dear Netflix” emerged as one of the top trending topics.”

What’s worse than a 53,000-customer backlash? How about a public relations disaster than unfolds on the home page of the New York Times? Daparim is a drug used to treat toxoplasmosis, which is an infection that is particularly dangerous to people with weakened immune systems, such as those with AIDS and some cancers. In 2015, Turing Pharmaceuticals raised the price of Daparim from US$13.50 per pill to US$750 per pill – an increase of 5,500%.

People are also now just as sensitive to a change in size as they are to a change in price. Companies used to get away with reducing the size of, for example, a bottle of tonic water from 315 ml to 300 ml, or the number of chocolate biscuits in a pack from 11 to 10, without changing the price. These initiatives used to be known as “stealth price increases,” but little is stealth-like in the age of social media.

Nowadays, a business has to accept that any changes in their prices have the potential to become newsworthy, conveyed by mainstream and social media to both their customers and competitors.

This means that price changes should be defensible and justifiable on the basis of value. And the bigger the price change, the better the justification that will be required.