How to Price a Product Using Behavioral Economics

Here are four of the most salient behavioral economics concepts as they relate to pricing.

Pricing principle #1: Design for the perception of value

Pricing is a representation of something’s value. But (this is important) value is not inherent to a product — it can change.

Pricing principle #2: Know what’s Relative

It is important to understand the anchors in your marketplace.

Pricing principle #3: Make sure your pricing feels Fair

Dan Ariely likes to give us a thought exercise: Can you imagine if Google started charging for each Google search?

Pricing principle #4: Start High.

When you launch a new product, it will be next to impossible to increase prices later on. You have price flexibility, but usually just downwards.

Putting it all together — what does Grass have to do with pricing?

Loud sounds are loud only in comparison to the other sounds we hear. Expensive things are expensive because of how they compare to alternatives and our past purchases. In short, there’s really no such thing as big or small, expensive or cheap — there’s just bigger, smaller, more expensive and less expensive.

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Kristen Berman

Kristen Berman

Thinking about Irrationality. Behavioral Scientist. Co-founder of Irrational Labs and Common Cents Lab.