Issue 1 of The Psychology of Pricing
This course is about the psychology of money. More specifically, it’s about how the way something is priced influences how people perceive it. If you signed up for this course hoping to find tricks to charge more money for an inferior product, you will be disappointed. We are all about hacking human nature for good, and we hope that you are too.
What we are hoping you will learn from this course is how to amplify the benefits of your product. What makes users feel like your product is valuable to them? What makes them appreciate it and choose it over another product? How do people’s expectations shape their experience? To get the most out of this course, we encourage you to think not only about your company’s bottom line, but about consumer well-being as a measure of success.
When we design products and services with consumer well-being in mind, we usually want to encourage a key behavior that we think makes the consumer better off. To make the behavior simpler to achieve, we identify the barriers to doing it. We also want to amplify the benefits to make it more motivating to do the key behavior. How people think about the value of your product fits within the last category: Amplifying benefits.
Why do we need to amplify the benefits of a product? Is this not marketing and thus manipulative? It can be, if it’s not used to increase consumer well-being. In their seminal book Nudge, Richard Thaler and Cass Sunstein outlined three critical factors which help guide this decision: Nudges should be transparent and never misleading, easily opted out of, and driven by the strong belief that the behavior being encouraged will improve the welfare of those being nudged.
We will add another factor: If the benefit you’re offering increases well-being only in the long term, people find it hard to stay motivated. That means that to keep up motivation, product designers should think about how they can make the benefits of using the product more immediate. For example, many things such as saving, health and even happiness require upfront costs but have payoffs later. When this is the case, we will want to increase the perception of value in the immediate (near term) in order to increase the likelihood that people engage or start using it now.
Unless consumers see the value of your product, they are unlikely to engage with it. And without engaging with it, how can they benefit from it? Over the next couple of weeks, you’ll learn what lessons from the psychology of money tell us about increasing the benefits of products. You’ll also learn how to apply these lessons in your own product.
What is the key behavior you want to encourage the users of your product or service to do? How does this behavior improve their lives? TIP: If you’re not sure what the key behavior is, check out the 3Bs framework on our website for more about the approach Irrational Labs uses to encourage behavior change.