---
title: "Nine Price \"Tricks\": Do You Know Them All?"
description: "In the classic 4P marketing theory, pricing is one of the most difficult aspects to practice and evaluate. On one hand, marketing work is highly fragmented today, making pricing—a global, strategic task—difficult to manage; on the other hand, pricing is full of subtleties, not simply based on cost and competition, but involving numerous consumer psychological factors."
author: "New Distribution"
publisher: "New Distribution"
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published: "2014-05-07"
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---

# Nine Price "Tricks": Do You Know Them All?

> In the classic 4P marketing theory, pricing is one of the most difficult aspects to practice and evaluate. On one hand, marketing work is highly fragmented today, making pricing—a global, strategic task—difficult to manage; on the other hand, pricing is full of subtleties, not simply based on cost and competition, but involving numerous consumer psychological factors.

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In the classic 4P marketing theory, pricing is one of the most difficult aspects to practice and evaluate. On one hand, because marketing work is highly fragmented in today's era, pricing—a global, strategic task—is cut into small pieces, making it hard to see the whole picture; on the other hand, pricing itself is full of subtleties, not simply based on cost and competition, but involving numerous consumer psychological factors.

Ten Price "Tricks"
In "Priceless," author William Poundstone elaborates on several price "tricks" (here, price includes product and service prices, as well as salaries).

1. Hidden price increases: Brands often avoid direct price hikes by reducing quantity, such as making the bottom of the packaging deliberately concave.
2. The magic of the number 9: Products priced ending in 9 often sell very well.
3. Anchoring effect: The same pair of shoes can sell for 800 yuan when placed next to 1,000-yuan shoes, but it's hard to sell at a high price next to 200-yuan shoes. Similarly, if the same bottle of beer is priced the same at a small shop and a flagship store, why do customers complain that the small shop is overcharging?
4. The appeal of discount coupons: People are more willing to spend 200 yuan on a printer and get a 25-yuan coupon than to buy the same printer directly for 175 yuan.
5. Bundling and unbundling: Essentially, both aim to prevent people from finding an anchor (reference point) for easy price comparison. For example, airlines charge separately for tickets and services.
6. Price description matters: Discounts and buy-one-get-one-free offers may be essentially the same benefit to consumers, but consumers tend to prefer discounts. People sometimes don't care about the choice itself but the way it's described; changing the description can achieve different effects.
7. In negotiations, making the first offer gives an advantage: It's like setting an anchor first, and others will bargain based on that anchor.
8. Drinking makes people unable to distinguish between "high risk" and "certain loss": This is why business is done over drinks; after drinking, people are easier to talk to.
9. Attractive people earn higher salaries: This is probably a basic rule; attractive people always enjoy more privileges.
10. The environment affects people's bargaining power: If a job candidate sees news about low salaries posted on the walls along the way to the interview room, they are likely to lower their salary expectations when it comes to negotiation.
...
Behind these price "tricks" are a series of psychological factors, which economists summarize into three major theories: anchoring effect, prospect theory, and ultimatum game. Of course, these three are also interrelated.

Three Major Theories Influencing Pricing

First, the anchoring effect.
People find it hard to state the absolute value of a price; they can only roughly give a range or a ratio. Price is "constructed" (or "felt") by the human brain. People often search for external cues to sense price, such as similar products they are more familiar with, an item they just saw, or a number reminded by the seller. In short, people always try to find an "anchor" for price comparison and bargaining.

Therefore, when setting prices, brands will definitely find a competitor for reference pricing; in actual sales, they will deliberately set the environment (placing more expensive products) to suggest that this product is a good deal. The best application of the "anchoring effect" is Taobao, where sellers use large red fonts to highlight "XXX cheaper than the same product at the counter"; however, the clothing photos inevitably include a Chanel bag or shopping bag to enhance the sense of value.

The anchoring effect is also applied in negotiations. If one party uses information advantage to first name an exorbitant price, they seize the initiative in pricing. Of course, taking the initiative to name a price is more suitable when price information transparency is low. In today's labor market with high information transparency, those who casually name a doubled salary still bear certain risks...

Second, prospect theory.
This is a basic economic theory, including three basic concepts.

1. People's concept of money is relative; choosing a reference point is key to judging whether they are in gain or loss. The classic sales anecdote circulating online about "how to go from buying a bicycle to finally buying a luxury car" is the best example.
2. The pain of losing money is far greater than the joy of gaining the same amount. For example, if you lose 100 yuan, most people feel that a 200-yuan bonus can compensate for the 100-yuan loss; to double the joy of a 100-yuan gain, you need at least 400 yuan. In 2009, German billionaire Adolf Merckle crashed his car after losing half his fortune; at that time, he still had $1 billion in net assets, but that did nothing to comfort his pain of losing half his wealth.
3. Probability affects people's price expectations. There is a big difference between "very unlikely (1%)" and "guaranteed not to happen (0%)", which is why people are willing to buy insurance. If we set up a matrix based on four criteria: gain, loss, possible, and impossible, we get four types of behavior: when considering gains, risk-averse people choose "a bird in hand is worth two in the bush"; risk-seeking people choose "nothing ventured, nothing gained"; when considering losses, risk-averse people choose "better safe than sorry"; risk-seeking people choose "burn one's boats". A person can be both risk-averse and risk-seeking, depending on resources and environment.

Third, the ultimatum game.
Simply put, the ultimatum game is like when a woman buying clothes tells the seller: "This is all the money I have; take it or leave it!" That is, setting a bottom line and deadline—if they agree, both benefit (though one side gets less); if not, neither benefits. Or the seller issues an ultimatum first: "Take it or leave it at this price!"

Theoretically, the person who issues the ultimatum first, considering the possibility of mutual loss, will offer a relatively generous (but still unfair) price; the other party, also considering mutual loss, will accept any amount, since something is better than nothing! But in real experiments, the results are surprising: the ultimatum giver selfishly keeps most of the benefit for themselves, leaving only a small portion for the other; and 35% of the recipients angrily reject clearly unfair conditions, preferring mutual loss. This tests the skill of the ultimatum giver, as well as the emotions, attitudes, culture, age, and environment of the recipient. For example, Jews are one of the few groups worldwide that can accept low prices, so using a single "low price" strategy for them is meaningless.

Bonus: Thinking Beyond Price
A few months ago, we conducted a "gift valuation" project. Small gifts are indeed trivial for companies that are wealthy and spend lavishly (or feel wealthy), and they don't need to spend much effort studying "value". But for other types of companies, it's worth investing effort to build a "gift value measurement system"—how to evaluate the perceived value of gifts in consumers' minds? How to build this value within cost limits? How to use this value to boost sales of the main product? These can reduce unnecessary costs in corporate behavior and improve return on investment.

Gift valuation is just the most basic work for marketers; the harder part is pricing the main product. Determining a reasonable price based on cost, competitive strategy, and consumer psychology is very difficult and sometimes subjective, especially without mature and comprehensive theoretical guidance and sufficient understanding of consumer psychology. So, we need to learn and cherish this knowledge.

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