The Science of Marketing

Most high tech marketing professionals look at pricing from a macro level (at least that’s what I did back in the day). Typical things to consider in setting a price include: competition, value, elasticity, market position and entry. But not many look at the implication of the actual numbers on the price tag in terms of customer perception – the MicroView. Over the last couple of weeks I have read two pieces (an article and a blog) that get down to the digits. Both are worth a read if you are responsible for setting your company’s prices.

In the April 2008 issue of Scientific American, Wray Herbert reports on some pricing research conducted by the University of Florida in "Why Things Cost: $19.95". The research says that when considering the starting point in a pricing negotiation the consumer is more likely to perceive the value in terms of the least significant digit. For example, if the asking price of a widget is $50, the consumer may perceive the value to be $40. But, if the asking price is $49.95, he will probably perceive the value as $49.55 or $49.25. The bottom line is that the more precisely a vendor prices a product, the more likely the customer will pay a price that is close to asking. Interesting.

In his blog post, "How sharp is your pricing strategy?", Drew (is there more than one?) discusses the impact of pricing on your brand. He notes that Walmart doesn’t price items with the standard $9.99, but, instead, uses prices like $9.83. This "odd" pricing helps reinforce Walmart’s brand promise of low prices. As Drew says "Those pinpoint prices speak volumes."

So, high tech product managers, do you have a MicroView? If so, please share.

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