Why We Pay More Than Others? Product Pricing Psychology | Future IQ

6,369 views • Nov 29, 2024

Concepts in this episode

Price Elasticity of Demand mechanism

Higher prices usually shrink the pool of willing buyers, but the crucial variable is how sharply demand changes at each price point.
Revenue Maximization Curve mental-model

Price and profit do not rise together indefinitely. Raising the price improves the return per sale but usually reduces the number of buyers, creating an interior point where total profit peaks.
Value-Based Pricing principle

Costs set the minimum sustainable price; customers’ perceived value and willingness to pay determine the profitable range above it.
Market Research and Price Experimentation mechanism

A business cannot derive willingness to pay from theory alone. It approximates demand by combining what customers say in surveys with what they actually buy at different tested prices.
Couponing as Self-Selection mechanism

Coupons make customers reveal their price sensitivity through effort. Discount hunters accept the search cost to reach a lower price, while less price-sensitive buyers preserve the seller’s higher margin by paying the listed amount.
Versioning and Premium Pricing mechanism

Versioning separates customers by willingness to pay: a modest product upgrade creates a credible reason for buyers who value it more to choose a substantially higher-priced tier.
Customer Segmentation mechanism

Different customers value the same product differently, so firms separate them into groups and offer distinct prices, bundles, or buying paths. The separation can capture willingness to pay, but visible differences risk appearing unfair.
Dynamic Personalized Pricing mechanism

Platforms can turn personal and contextual data into individualized price estimates, charging according to inferred willingness to pay rather than offering everyone the same price. The revenue opportunity comes with a trust problem: customers may see personalization as discrimination once they discover it.

Description

How often have you seen different pricing for the same products on different e-commerce platforms? Or how about different pricing for different people but for the same seat on the same flight? If you have also experienced this unfair differentiation and gotten frustrated about it, then you might find this episode interesting. This practice is nothing but "customer segmentation" that businesses follow and this episode we have uncovered the truth behind what we believe product pricing is in the market. By gaining insights into how companies charge more and sell more, customers can understand the psychology of product pricing. What is most interesting to note is that the pricing of the product does not depend on the cost of production, raw material, labor, etc.; rather, it is to be decided on the basis of how much a customer is willing to pay for that particular product. We have explained the three broadly three categorizations for pricing based on customer types while also giving real-life examples, so watch till the end if you are curious to find out which category you fall into. Related videos: Why Surge Pricing Feels Wrong: https://youtu.be/IsHPxh-C0Sw The Dollar Value of Your Time: https://youtu.be/C-8gffw9_h4?si=CIWDDMw5vJT736v0 Demand & Supply in Our Lives: https://youtu.be/imweTGK0Myk?si=q-VlSpwU_OgQhCPV Opportunity Cost Explained: https://youtu.be/fgtiC6RkRwg?si=G9tuCCkX214_uiOf Efficiency of Free Markets: https://youtu.be/ULc5aCS_L88?si=g_Ad5mMqr3zHoXMS Compounding Beyond Money: https://youtu.be/KheKQbax0ME?si=Yb0IqaQarWCepcyX Chapters: 00:00 Introduction 00:30 Understanding pricing with example 01:26 How to maximise money 05:36 Where to get the data from, willingness to pay? 07:40 Pricing categorization - Discounts, Premium, Dynamic Pricing 17:00 Is it unfair - price differentiation? #futureiq #productpricing

Transcript

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