Start Up Blog

Pricing relativity

Posted in entrepreneurship by Steve Sammartino on September 29, 2011

When I buy something via iTunes it doesn’t feel like money. Especially when it is an app that is a few dollars at most. It’s easy to press a button which confirms a purchase at a value which is lower than anything you can buy in the real world. A coffee or coca-cola is $3.50 these days. it doesn’t end there though. When we get the bill on our credit card it’s the smallest number on the page.

Mobile phone plan $59

Restaurant XYZ $179

itunes $2.99

Again – the comparative spend makes it easy to ignore it as inconsequential expenditure. Yet, for some reasons we’ll switch brands at a supermarket to save 15 cents on the purchase of toothpaste.

There’s an important lesson for entrepreneurs here, and that is the selling environment and immediate comparison.

Relativity.

How can we sell our brand in place where it looks cheaper than everything else on offer, as the biggest barrier isn’t how much money it costs, but how much it costs relative to the things around it? It turns out that what the price is, is not nearly as important as where the price is.

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3 Responses

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  1. Rohan Cooke (@rohancooke) said, on September 29, 2011 at 12:46 pm

    It’s also very interesting that the highest grossing apps are mainly free apps. Bring people in with a free and great application, and make them want, no, NEED more!

  2. Patrick said, on October 12, 2011 at 8:29 am

    It proves that consumers can’t apply value to things. Hence, they leave it to others to create the reference point. When apps discount their price from say $1.99 to $0.99 for 24 hours, you see big jumps in downloads. By reference to other completely unrelated apps, we see that $1.99 is an average price and $0.99 is ‘cheap’. We ignore the original value proposition offered by a $1.99 app despite the blatant utility of being able to extract hours, if not days of entertainment or information from it. Brand equity is king. As a business, to dictate what your product is worth and not compromise is the ideal. Look to Oakley and Apple as perfect examples. When was the last time you saw Oakley sunnies marked down?


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