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Old 30th June 2008, 03:14 PM   #1
sannwood
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Default Human Behavior When It Comes To Business

A recent post over at Small Business Trends regarding human behavior relating to business included the following:

Quote:
The power of price. Ariely points out that we believe that things that cost more are of greater quality than things that cost less. This point explains how entrepreneurs can use pricing strategy to make money from the irrationality in human behavior.
And that got me to thinking - it's so true. I know many, many people that feel that because something costs a bit more - it must have more value. It must be of better quality somehow. Meanwhile, nothing can be further from the truth. And someone even pointed this tendency out in the comments section of the post when it comes to food products. How many of you know someone that will not eat anything that doesn't include a brand name? And how many of you know someone who will pay a tad more for an item such as a television, tractor, lawnmower - that is a brand name vs. a not so popular brand?

It's amazing how the human mind works. How many of you are guilty of doing the same thing? Come on. . .you can admit it!

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Old 30th June 2008, 07:50 PM   #2
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Ok. you got me, we all are

Check into the study of behavioral economics

A couple more books for your collection

Predictably Irrational
http://www.predictablyirrational.com/

And also check into Freakonomics if you haven't read it yet.

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Old 2nd July 2008, 01:27 PM   #3
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Thanks Logan! That's actually the book that's discussed in the post link, too. Sounds like a really interesting read. Funny how the human mind works. . .I'm a bit guilty of this myself but a tad more relaxed about it than some friends of mine :-)

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Old 2nd July 2008, 02:36 PM   #4
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Doh. sorry. too excited to recommend the book

I actually listened to it on cd while traveling a couple weeks ago. The info regarding pricing is very good within the book, although there is a lot to his logic beyond just higher prices. He goes into not just the higher price and perceived value, but also comparison based on our first association with a product/service. I found these details on the importance/influence of the first price point associated with something being an "anchor" to be very insightful. That was what got me - his comments on anchoring and price points.

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Old 2nd July 2008, 09:53 PM   #5
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Quote:
Originally Posted by sannwood View Post
A recent post over at Small Business Trends regarding human behavior relating to business included the following:



And that got me to thinking - it's so true. I know many, many people that feel that because something costs a bit more - it must have more value. It must be of better quality somehow. Meanwhile, nothing can be further from the truth. And someone even pointed this tendency out in the comments section of the post when it comes to food products. How many of you know someone that will not eat anything that doesn't include a brand name? And how many of you know someone who will pay a tad more for an item such as a television, tractor, lawnmower - that is a brand name vs. a not so popular brand?

It's amazing how the human mind works. How many of you are guilty of doing the same thing? Come on. . .you can admit it!
This study has even verified it:

http://www.smallbusinessbrief.com/fo...ad.php?t=16431

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Old 7th July 2008, 11:59 AM   #6
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Interesting post and article. What's funny is that on a different forum, one entrepreneur was saying that he was having problems gaining clients since he charged more than other guys. I guess maybe people like to pay more for a brand vs. a service at times? Opinions?

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Old 7th July 2008, 06:43 PM   #7
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Hi ginac84, I've been through the book and the best I can say is to read through it. These guys have doctorates in studying this behavior, so it is tough to give it justice without pointing in the direction of the book itself. I think their are some groundbreaking ideas there.

In your scenario, I wouldn't say that is necessarily the case based on the book. It is not just about a higher price equals a higher perceived value. One factor, I mentioned above, is anchoring. So if they first see competitor X price then go to your friend and see the same product priced higher, they are not going to say they are getting more for the same thing from your friend. They have an anchor price, they are already familiar with so your friend priced higher for the same product seems like he is taking advantage of them. Now in comparison, if your friend were to be priced $10 higher and offer a free (product x) with a $59 value maybe all of a sudden the sales would change in his favor. Give the book a read, well worth it in that sort of situation - imo. It is not just higher price = higher perceived values. Their is an anchoring price, the power of free, comparison of alternatives that all play some role, power of ownership, many factors etc. The book teaches you how to make one change, test and gauge results based on giving you endless researched examples.

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Old 24th August 2008, 01:04 PM   #8
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Here's an interesting article on the subject of Price points.
http://www.pricepointreport.com/

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Old 16th September 2008, 03:59 AM   #9
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Quote:
Originally Posted by Logan View Post
Hi ginac84, I've been through the book and the best I can say is to read through it. These guys have doctorates in studying this behavior, so it is tough to give it justice without pointing in the direction of the book itself. I think their are some groundbreaking ideas there.

In your scenario, I wouldn't say that is necessarily the case based on the book. It is not just about a higher price equals a higher perceived value. One factor, I mentioned above, is anchoring. So if they first see competitor X price then go to your friend and see the same product priced higher, they are not going to say they are getting more for the same thing from your friend. They have an anchor price, they are already familiar with so your friend priced higher for the same product seems like he is taking advantage of them. Now in comparison, if your friend were to be priced $10 higher and offer a free (product x) with a $59 value maybe all of a sudden the sales would change in his favor. Give the book a read, well worth it in that sort of situation - imo. It is not just higher price = higher perceived values. Their is an anchoring price, the power of free, comparison of alternatives that all play some role, power of ownership, many factors etc. The book teaches you how to make one change, test and gauge results based on giving you endless researched examples.
Thank you for this Logan...

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Old 16th September 2008, 10:53 AM   #10
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You're welcome Mary

Another new book along these lines on my radar -

Sway: The Irresistible Pull of Irrational Behavior
by Ori Brafman and Rom Brafman
http://www.swaybook.com/

Quote:
We interviewed experts and collected stories from the realms of psychology, economics, sports, politics, aviation, jurisprudence, anthropology, and corporate management to distill the psychological forces that sway our behavior.


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