Can a Higher Price Seem Lower than a Lower Price?

Tuesday, March 8, 2016

I'm not trying to trick or mislead you with the title. Don't worry about fine print or payment terms. It's all very simple. Given two prices, will the higher one ever seem lower than the other?

The answer is surprisingly yes.

It's counter-intuitive, so let me explain a secret. People are not rational. They operate in the modern world with brains that were better suited to guarantee survival in the stone age. At that time, the ability to understand the nuances of modern commerce were hardly an important trait.

Think about things that were "free" to our ancient ancestors: dead leaves that fell from trees, countless piles of sand at the beach, and acres upon acres of grass on the ground. These were all items of near-unlimited supply that our ancestors never gave a second thought. Now think about things that were valuable to cavemen. Items like food, shelter and weaponry. Each of these required a level of investment to acquire. Sure, they didn't cost money, but they required time and expertise to acquire.

I recently moved to a new apartment. Making the rounds, I wandered into the basement. Lo and behold, there they were: rows of washers and dryers. A sign quickly caught my eye. Dryers: 25¢. Just 25¢! They were so cheap! I could stick clean clothing in a dryer and just watch it spin for fun! It would barely cost me anything and might act as a fair substitute for the dreck found on cable television!

My head spun like my future laundry. My shirts could be double dried - maybe even triple dried! People would come far and wide just for the chance to talk with me - the guy who could dry his clothing for pennies on the dollar.

Everything was going my way, and I was praising myself for my good fortune. That is until a little memory surfaced in my paleolithic brain. I used to have free washing machines and dryers at my last apartment. I had never given it a second thought. The free machines at my old apartment were nothing to gloat about - they were just there.

When doing laundry was free, I put the machines into the "free" category - along with dead leaves, useless sand and unappetizing grass. No one would ever gloat about having any of those items - they weren't worth anything at all. But now, now that I was paying for laundry, the machines were placed into a different mental category. Now it was valuable - and I was getting it for dirt cheap.

I used to think that pricing was strange, but now I realize the truth. Prices are never strange - it's the human brain that is strange. Thinking otherwise is a certain recipe for disaster.

Looking for help with your pricing? Why not contact me for a consultation? Feeling shy? You can always read the world's greatest book on pricing software systems too.