I recently stumbled on an interesting Daily Mail article about behavioral pricing. One web entrepreneur, Alex Gannett, founder of CampusSplash says that 2012 will be ‘the year of behavioural pricing’ – a new type of e-commerce, where prices will be tweaked to include what customers are willing to pay. It’s an old idea of setting price individually shopper by shopper. As online shops already have a huge amount of information about their customers via browsing and purchasing history, behavioral pricing is possible to do automatically. As I researched behavioral pricing more, I found Hooman Estelami and Sarah Maxwell’s Behavioral Pricing book. I do not own the book yet, but it is definitely on my wish-list what to read in the near future. In their book introduction there is an interesting old Russian proverb about pricing:
“There are two fools in any market: the one who does not charge enough and the other who charges too much.”
What is Behavioral Pricing?
Dilip Soman (as he was Associate Professor in HKUST) presented nicely behavioral pricing in his article (http://teaching.ust.hk/~mark690p/pricing.pdf). Article, or more like presentation, does not give you an exact definition for behavioral pricing, but it gives good examples of human behaviour on pricing scenarios. Researching your customers’ behaviour gives you ideas to think about on how you can set your prices.
Daily Mail writes in their article, that “Chris Simpson, Chief Marketing Officer at price comparison website Kelkoo says, ‘There are many pricing policies already used by retailers that most consumers are completely unaware of.’ ‘These include things like regional pricing variations in the same stores across the country, not to mention retailers using different pricing structures for the same products in stores and online.’ Shops already harvest information from loyalty card programmes, and also use credit ratings to decide what rates some customers should pay for products such as loans.“
As I said earlier, behavioral pricing is not new thing. In my opinion every good sales representative does it on every sales negotiation. What is new is that research is catching up and that way more applications will emerge. I tried to search current overall applications of behavioral pricing for online shops. I could not found none implementing overall behavioral pricing.
Word of Caution
Implementing too aggressive behavioral pricing automation can cause you damage as Kelkoo’s Simpson says in Daily Mail article:
“Although the idea seems like a next step for businesses, it may be hard to work in the real world – particularly when web shoppers are fond of using apps and comparison sites to track down the best bargains: ‘Whilst behavioural pricing might seem like the next logical step, it is a hugely complex initiative for retailers to implement.’ ‘The danger of this pricing strategy is that if ‘social savvy’ shoppers became aware of it, it could lead to a social media boycott destroying a retailer’s reputation very quickly.'”
So, carry out your pricing strategy, but watch closely what will happen. Reasearch and measurements are always the key to know exactly how your pricing and marketing works.
Want to Know More?
If you want to know more, there is behavioral pricing researchers like Teck-Hua Ho (http://faculty.haas.berkeley.edu/hoteck/), William Halford Jr. Family Professor of Marketing. Pruning through his research you get more ideas about human behaviour and how to set those price points.
If you find good links on behavioral pricing, I would love know them: please, post them on the comments below!