Price isn't a number. It's a feeling.

In marketing, perhaps the most profound pricing insight isn't actually economic, it's neurological. We've constructed entire markets around a fundamental cognitive error. We're mistaking the price of something as being some kind of intrinsic quality signal rather than recognizing it as nothing more than an exchange mechanism. Yet this kind of error has been so embedded in human psychology that we've come to believe it as being the reality of the market. Now, have you heard of the paradox of Veblen goods? Of course not, unless you're in marketing. You don't know what a Veblen good is. There's no reason why you should. Let me explain what a Veblen good is, okay? So let's backtrack a little bit. In the world of finance and economics, one of the laws that they hold on to most dearly is what they call the law of demand. Now, the law of demand says that if we reduce the price of something that selling, the sales of that something are going to go up. And at the same time, if we decide to increase the price of something, the demand for that something is going to go down. Now, a Veblen good is a type of usually luxury product. It's named after some economist named Veblen, of course. Um, but a Veblen good is where the demand for the product increases as the price increases. Thereby running contrary to this law of demand. So for example, the price of an Hermès Birkin bag starts from around 12 grand, but I mean, you can easily go up and it'll spend more than 50,000 on, on a Birkin bag, or even more, right? And not only that, you already have to be a regular Hermès customer before they'll even add you your name to the list, of which there's a waiting list that goes on for years. Okay, but in terms of actually being a bag, a Birkin bag doesn't function any better than a $50 bag, right? However, the consequence of its higher price fundamentally alters its utility. The cost becomes the product. You know, for 12 grand, we're no longer talking about buying high-quality leather, attention to detail, craftsmanship and all that stuff. We're purchasing the psychological payload that comes with expecting expensive acquisition. Okay, now you can take that basic concept outside of the luxury environment and put it into any and every commercial interaction. A consultant who charges $500 an hour triggers different neural pathways than one who's charging $50 an hour. Okay, the client brain doesn't just expect superior service, it actively constructs it through selective attention and confirmation bias. We expect and believe we're getting better advice simply because we're paying more for it. Now, the cheaper consultant may be doing as good or maybe even as a better job, but since they're charging less we regard their insights and their work to have less value. So what we call a rational pricing strategy is actually applied behavioral science. We're not so much just setting a price, we're actually architecting an experience that begins the moment someone sees our price sticker or rate card. Now, the businesses that grasp this understand something counterintuitive, that especially in knowledge-based work, undercharging isn't so much competitive positioning as it is customer experience sabotage. Our price is our customer's first and often most enduring impression of our capability. Thanks for listening. If you like what you heard, please pass it on. I'm not saying I'm right, I'm saying many out there are wrong. Please subscribe, share, comment, whatever works for you. Find out more at kexino.com, that's K-E-X-I-N-O. Hope to see you again here soon.