Humans are interesting creatures. We can understand and implement concepts of such complexity – and yet, we are allured by simple things. When it comes to economic decisions (like what we buy), the easier the decision is, the more likely we are to make a commitment. Just as behavioral economist Richard Thaler said:
“If you want someone to do something, make it easy”
Now, presenting simple prices, and using price segmentation and other techniques, are not mutually exclusive. You absolutely should think deeply about your pricing. Your pricing could even be fairly complex in the back-end, but simple and easy for customers to understand in the front-end — this is how LinkedIn does it. Apple is another example of simple pricing: easy to understand, but still well-thought out by their pricing people:
When customers see simple pricing, they are more likely to make a decision (resulting in a sale), because there is less friction – there is less complexity their brain has to work through to decide what they want. Conversely, when they see complex pricing, they are less likely to make a decision – hence, no sale.
Think about shopping for something on Amazon’s website. What you see is the item and its price. Very simple. What you don’t see is that Amazon has complex algorithms that look at their customer’s purchase history, zip code, maybe even the credit limit on their credit card – to determine what price to charge each customer. But in the end, Amazon shows only one price to their customer. Complex pricing, simple price presentation.
The lesson we should learn is to ensure that while we think deeply and strategically about our pricing, that we keep its presentation simple for our customers. It’s a more positive experience for them, and a more profitable outcome for us.Tags: pricing data, pricing foundations