avatarDaniel Hövermann

Summary

The article discusses four unconventional pricing strategies used by companies in various industries to influence consumer perception of value and encourage purchases.

Abstract

The article delves into the psychological and philosophical aspects of product pricing, emphasizing that the actual value received by customers can differ significantly from the price paid. It outlines four distinct pricing strategies: the first involves increasing the price of a medication like REVLIMID without improving the product, simply by finding new applications for it; the second strategy uses ultra-luxury products like the Maybach Mercedes to make the next lower-tier product seem more appealing and reasonably priced; the third strategy involves early-bird pricing to secure customer payments well in advance of product delivery, often without any improvement in product quality; and the fourth strategy sees book prices decrease over time despite their enduring value, reflecting the changing perceived value by consumers. The article concludes with advice for consumers to be aware of these pricing tactics and to make purchasing decisions accordingly.

Opinions

  • The author suggests that companies, particularly monopolies, can arbitrarily increase prices without enhancing product quality, as seen with Celgene's REVLIMID.
  • High-end products like the Maybach Mercedes are seen not only as profit generators but also as marketing tools to make other products in the line seem more attainable and desirable.
  • Early-bird pricing is viewed critically, as it may pressure consumers into premature purchases without any actual increase in product value over time.
  • The decreasing price of books over time is presented as an example of how perceived value can change, with the implication that savvy consumers can benefit by waiting to purchase.
  • The article encourages a mindful approach to spending, suggesting that understanding pricing strategies can lead to better financial decisions and a happier relationship with money.

4 Different Rules Behind Pricing You Have Never Thought Of

Money makes the world go round — and your head too.

Photo by Artem Beliaikin on Unsplash

The philosophy and psychology behind the pricing of products offer vast fields to study. Entire study scholars are set up for this topic. I like to stick to one quote to simplify the general topic:

“Price is what you pay. Value is what you get.” — Warren Buffett

And companies are very creative in disguising the true value. Often, customers only find out the true value after they bought the product. Therefore, it helps to understand how the companies use pricing in their respective industries.

#1 “product improvements” in cancer medicine

In a congressional questioning, Katie Porter asked Celgene's CEO about the pricing policy for one of Celgene’s top-selling products. Mark Alles headed the company at that time and had to endure an interesting questioning:

  • The product REVLIMID was approved in 2006 and had a market price for one pill of about $215 when it was introduced.
  • REVLIMID (or lenalidomide) is a medication used to treat multiple myeloma (MM) and myelodysplastic syndromes (MDS).
  • The price per pill rose from $412 in 2013 to $719 in 2017 and stands at around $763 today.

Katie Porter wanted to know which product enhancements were introduced in this period of time.

The answer by Mark Alles was brilliant: “We found new application areas for the product.”

This means that the product itself did not get any better, but the company found more possible REVLIMID patients. Celgene did not improve the quality, nor the tolerability, nor the production process of REVLIMID in this period of time.

Some companies have the convenience of being the monopolists in an area. They can set the price, and the market has to accept it.

An interesting side fact: the compensation for Mark Alles was $13 million for being the CEO of Celgene in 2017 alone. According to Katie Porter, this is about 200 times the average American’s income, and 360 times the amount the average senior gets on social security.

Conclusion

  • Eat healthily, do sports, stay away from negative energies — otherwise, you end up as a customer for an industry that does not leave any room for price discussions.
  • You will be a cue ball for this type of industry, such as representatives of the following: tobacco, medicine, gas & oil, etc.

#2 the only reason for the Maybach Mercedes

A Maybach Mercedes is at the far end of the product portfolio of Mercedes cars. And it marks the noblest, most exclusive, and luxurious version of the respective class.

When you walk into a Mercedes store, you sometimes have the opportunity to see one. And they are typically displayed in a bright light, surrounded by barrier tape to point out the exclusiveness.

There is a system behind it. In rare cases, rich people buy such a car. And if they do — Mercedes is delighted.

But in most cases, the mind of the customer goes an alternative way:

  • A Maybach is too expensive for the customer. But the “normal” S-Class gets more appealing if the Maybach is not affordable.
  • If the S-Class does not work for the customer, they will be carried through the price list of Mercedes, and at one point — the customer will accept the offered deal.

The Maybach only exists so that customers will buy the “normal” S-Class. It is the same for the Porsche Turbo S, the BMW 7-series, and alike. The top models only exist for the big spenders or, in most cases, to justify purchasing the next “cheaper” car in the portfolio.

By the way, these concepts work in all areas, and car manufactures are not the only ones using them.

According to Peter Thompson, there are only three steps for the perfect pricing strategy:

  • Create a primary version of your product.
  • Create a deluxe version of your product.
  • Create a super-deluxe version of your product.

And if you, for instance, take a look at the pricing policies of internet coaching offers, you can see exactly this method. The last super-deluxe version only exists to justify the “medium” offer.

Conclusion

  • Whenever you go shopping, be aware of this method — sometimes the “primary” version is sufficient, or even another supplier offers the same product for a lower price.
  • When you are a big spender, maul down the barrier tape and immediately jump into the Maybach.

#3 securing money by offering “early-birds.”

Contrary to the example in #1, you often can see “early-bird” proposals. Whenever you buy an early-bird option, the company wants to secure the money a considerable amount of time before the actual event.

This leaves room for inquiries:

  • Does the product get better over time, when the prices will rise close to the event?
  • Or is the contrary true — is the event not worth the final amount?
  • Are customers trapped in this scheme as our minds only see the possible savings?

You can see this process too when you meet overly eager sales assistants. They push you in a direction and set imaginary final dates for the offers. By doing so, they apply pressure on your mind, and sometimes you fail to see the reality:

The products will remain the same. The company wants to secure your money as early as possible.

Conclusion

  • Whenever sales representatives fail their true purpose — leave the playground.
  • The true purpose of salespeople: offering all the necessary information to the customer to give the customer the best chance to make a great decision.

#4 book price diminishing

Whenever you buy a book, the starting price is typically higher than two years later. But a book is different than a cellphone, a car, or any other technological device.

A book offers wisdom, insights, opinions, help, and alike. And the quality does not diminish — sometimes they seem a bit outdated, but John Cray’s masterpiece “Men are from Mars, Woman are from Venus” is still valid today.

Nevertheless, book prices diminish over time. And they do for a reason:

“Pricing is actually pretty simple…Customers will not pay literally a penny more than the true value of the product.” — Ron Johnson

People value products at different personal levels. Some people need to buy the newest book from famous authors such as Joanne K. Rowling or Tony Robbins in the first hours after publishing.

Others wait to see the price drop. And to reach these people, the companies lower the price over time. The quality itself did not drop at all.

Conclusion

  • Whenever you are craving a new product, but you have to save money: wait. There is no alternative to this. Even things like books get cheaper over time.

Money-saving thoughts

Money itself is a very emotional topic. And as Ken Honda, author of “Happy Money,” wrote:

“Get into a happy money flow — then you will see that the money intakes, and your expenses will rise and you don’t have to worry about this development anymore.”

For all others, it would be best if you could stick to the following:

  • Be aware of the pricing tactics, and observe your own actions.
  • Don’t get involved as a customer in the monopolist industry.
  • Sometimes waiting is the best you can do.

And as always — please enjoy the ride.

Money
Pricing Strategy
Change
Life Lessons
Personal Growth
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