Everything I learned about marketing I learned
by watching infomercials and direct marketing ads.
The first law about pricing was about the importance of
choice. The second speaks of
urgency. Urgency forces the brain away
from the timely rational and towards the impulsive emotional. This is an important part of all buying
behaviour, and has a special effect on price sensitivity.
When we panic, our brain chemistry changes. This reaction, part of the fight of flight
response, moves our brain into a reactive mode.
This is crucial when confronted with say…a sabre toothed tiger. It is not so important when the announcer
tells us that this is a ‘Limited time offer…quantities are
limited…call that toll free number in the next five minutes. The same brain chemistry kicks in…all be it
in a limited way. We react rather than acting rationally.
The twin of urgency is scarcity. The laws of supply and demand tell us that
where there is high demand, and limited supply, prices begin to increase. In a great podcast from Planet Money, from
National Public Radio in the US there was a great story on the reselling of
Nike sneakers. Those who purchase
limited edition shoes early can often double or triple their money at resale.
(I have referenced the website below…check it out it is very interesting.)
During the 2010 Olympic Winter Games, tickets to the Gold
Medal between Canada and the USA sold for thousands of dollars, due to the high
demand (the host nation in the gold medal match) and limited supply.
Sometimes, urgency and scarcity just happen. Sometimes we can work to make them
happen. Limited editions of prints are
an attempt to limit supply. Time limited
availability creates urgency. You can
use these techniques to influence demand or supply and therefore move your
prices higher. Trying to create scarcity can backfire. In anticipation of demand for the 2015 World Junior Hockey Championships, the Montreal organizers raised ticket prices to a rate much higher than the NHL Canadiens. The result was empty seats in the stands…taking away for the overall hockey experience.
Scarcity and urgency affect consumer behaviour and price sensitivity. Creating, or at least understanding these two pillars of your customers' mind will help you develop a more robust pricing policy.
Happy New Years. I look forward to more posts as the year progresses. This is a great time for forward planning, change and business development.
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