Question: Mark, on the podcast with Ron Baker he said “Price is a feeling”. Why isn’t it a number? -G
Answer: Hi G. Thank you for listening to the Impact Pricing podcast. Ron is incredibly smart and it was a thrill having him on. I’m going to answer your question, and will also tag Ron on LinkedIn so maybe he will answer it too.
I’ve always been good at math. Somehow numbers just came easy to me. A price is a number, so it should behave like math. But it doesn’t. What fascinates me so much about pricing is that it is a number, but it doesn’t act like other numbers.
Pricing Doesn’t Follow a Mathematical Formula
In a math problem, there is a right answer.
What does 2 plus 2 equal? 4
It’s right or it’s wrong.
In pricing, we ask, “What is the optimal price of a specific product?
It’s impossible to know.
Even if you could determine the optimal price at this moment, conditions change.
Buyer behaviors change. The optimal price would change.
Back to the question, why is price a feeling?
Let’s do this exercise to demonstrate the emotional side of pricing.
Willingness to Pay is a Price Range, Not an Exact Amount
Follow this exercise:
Choose any item.
Now, how much would you pay for that item? You personally. We are not looking for a price. We are looking for your personal willingness to pay. Choose an exact number. Say it out loud to commit to it. Now that you have that number, what if the price was one cent more? Would you not buy it? You probably would. I would. So that exact price you said was your willingness to pay really wasn’t.
It marked a range of acceptable prices to you.
Pricing Causes Emotional Reactions
Let’s keep going.
What if the price was only 1% of the price you said, meaning a 99% discount?
If you were looking at a new Audi, you said you’d pay $50,000, what if the price was only $500?
You’d think something was wrong with the car. You wouldn’t know what, but your gut tells you this would be a mistake.
The price itself created a feeling in you.
And what about the emotions of the situation you find yourself in? Have you ever been upset by a salesperson so badly that even though you wanted to buy the product, you didn’t because you didn’t want to give that salesperson the sale? How much does a salesperson have to discount to overcome his own bad behavior?
I love math and numbers because there are right and wrong answers. I love pricing because it uses math and numbers, but it’s really a big puzzle. It’s not just logic. It includes the emotional part of buying as well.
If I could put words in Ron’s mouth, I would say Willingness to Pay is a feeling. Price is trying to match that willingness to pay.
Tags: pricing foundations, pricing strategy