Media Mind Games: The Psychology of Pricing – Part 1

Pricing PsychologyThere are numerous reasons behind the the buy-side’s desire to buy media programmatically. Efficiency, (often) cheaper inventory and the ability to use data to inform buying decisions some of the more commonly cited ones. However, something else we might want to consider is the fact that – even when there’s no complex data processing required – it’s often a very good idea to remove the human brain from buying decisions. Why? Because time and time again, the human brain has been found to be bad – really bad – at working out the value of pretty much anything. Likewise, for anyone selling media, pricing psychology can used to entice buyers to spend more.

For the most part, the human brain is wired in such a way that we often have a warped, malleable perception of value, which isn’t necessarily aligned with price. As Warren Buffett once said, “Price is what you pay for something. Value is what you get.”

Exploiting these psychological blind-spots can deliver significant returns, and in the media world these techniques are already being applied by at least some publishers, agencies and marketers, but understanding the psychology of pricing can be valuable for everyone in the industry, even where prices are set dynamically. Here are a few of the more interesting examples:

The Economist’s ‘Useless’ Subscription Offer 

Dan Ariely, Professor of Psychology and Behavioural Economics at Duke University, specialises in studying at how people make irrational decisions. One interesting example he provides is from The Economist, a publication that prides itself on its intelligent and economically savvy readership.

The prices for the various one-year subscription options were: Subscription – US $59.00

Print Subscription – US $125.00

Print & Web Subscription – $125.00

At first glance, you might be inclined to think that the middle option is a waste of time, right? But it’s actually serving an exceptionally important role in that it helped get costumers to turn from “bargain hunters” to “value seekers”. Ariely explains in detail here:

Actively Inviting Buyers to Compare Prices Isn’t Always a Good Idea 

Researchers found that when marketers actively asked buyers to compare prices, it led to buyers becoming more risk-averse and being more cautious in terms of their bidding behaviour. The 2005 study that was carried out by academics from Stanford and Rice University, who experimented with real online auctions on eBay for CDs.

Two identical CDs of various albums would be put on eBay with a starting price of $1.99. However, one CD would be listed alongside two identical CDs priced at $6.99; while the other would be flanked by two priced at $0.99. So the listings would have looked something like this:

Listing 1

Pink Floyd – The Wall $6.99
Pink Floyd – The Wall $1.99
Pink Floyd – The Wall $6.99

Listing 2

Pink Floyd – The Wall $0.99
Pink Floyd – The Wall $1.99
Pink Floyd – The Wall $0.99

The study found that the CDs listed alongside those priced at $6.99 sold for significantly more than those listed alongside CDs going for just $0.99, even though the starting price for both CDs was $1.99. So the context in which you present prices is often equally – if not more – important as the price itself. A news publisher for example, might want to present his newly increased prices for the sport pages wedged between ‘ultra-premium’ prices for financial inventory.

Pink Floyd, The Wall

However, it’s important for sellers to let buyers make the comparison for themselves – the effect was lost as soon as marketers asked the participants to actively compare prices. The buyers became suspicious and suddenly the prices of the adjacent CDs became statistically irrelevant to what was bid on the middle disc and the buyers became much more cautious and risk averse.

The Nines

The chances are the first piece of pricing psychology you picked up on was how retailers like to set their prices ending in ‘9’. The human brain interprets numbers from left to right, so is more likely to be influenced by the ‘7’ in a price that is ‘£7.99’ than the fact that it’s actually closer to £8.00.

But how far can you take the whole nine thing? Will it work for luxury goods, or indeed for premium inventory? According to Sabine Kleinsasser of Vienna University of Economics and Udo Wagner of the University of Vienna, people are just as likely to be swayed by prices ending in nines for luxury items as anything else.

The power of nines were also demonstrated by researchers at MIT and the University of Chicago, who conducted an experiment with prices on women’s clothing in a fashion catalogue. They had three basic prices, $34, $39, and $44, and where surprised to find that the item priced at $39 sold best – even better than the cheaper price of $34. Demand for the $39 dress was a third greater than the same dress priced at $34. But there was no change in demand when the price of the dress was priced at $44. The lesson for media here is a simple one: behold (or be wary) of the power of nines.

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One for the pub quiz: fewer retailers and restaurants in China use the number four as it is regarded as unlucky, whereas a disproportionately high number of restaurants use the number nine in prices as it’s associated with good luck.

Part 2 will be published on Tuesday July 30th.

Worth a read: Priceless: The Hidden Psychology of Value

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