Paying More

Do people only pay more when the supply is low and the demand is high? Isn’t that what basic economics assumes? If you want to influence what people will pay review the series of experiments done in the Predictably Irrational chapter called “The Fallacy of Supply and Demand: Why the Price of Pearls – and Everything Else – Is Up in the Air.”

There is the idea that people will glom onto the first number that they process. They use this number to make the next set of decisions on how much they will pay. Dan ran a simple experiment where the people wrote their last 2 digits of their social security number down. Then they were asked to identify how much they would be willing to pay for each object. The amount they were willing to pay increased as the size of the last 2 digits went up. So from 0-19 people were willing to pay a lot less than the folks with the digits 80-99.

There are many places this trick is used such as in advertisements and suggested retail prices. When was the last time you have seen an advertisement that sold a car for 30,000? It is always priced at 29,999. When you get to the dealership they know that you now will be willing to consider some of those higher priced ad-ons.

So the next time you are setting a price and trying to get someone to buy, lead with a high number that the person will process. Next have them pick from a set of options, they just may be willing to buy more.

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