From the course: Pricing Strategy: Value-Based Pricing
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Play with loss aversion when selling
From the course: Pricing Strategy: Value-Based Pricing
Play with loss aversion when selling
- The psychological theory of loss aversion applies to any human decision process and can therefore, be applied to pricing. It predicts that humans count losses heavier than gains. In other words, a dollar you lose carries more value than a dollar you gain. Sounds very strange. But empirical evidence is overwhelming. Let's assume that you are the owner of a car dealership, and you know that selling new cars is especially profitable if consumers choose many additional options, such as leather seats, a moonroof, extra power wheels and the like. How would you structure your sales pitch when a potential buyer walks into your showroom? Would you start with the entry model for a reasonable price, and then do the upselling by adding options? Or would you rather start at the high end with a fully-loaded expensive model and then move down? Empirical evidence from many studies suggests that starting high and going down leads to higher sales than starting low and selling up. Well, you might have…
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