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The value of relative pricing comparisons

I find the topic of pricing incredibly interesting. How much is someone willing to pay for item X? I’ve said this before, but pricing was one of my favorite classes in business school.

Here is a line that I really liked from a recent blog post by Tomasz Tunguz’s on price anchoring:

“Relative pricing comparisons are among the most common method of price rationalization.”

The topic of his post may not be all that interesting to this audience – it’s about software as service platforms – but the principles should be. 

In Tomasz’s post he talks about how companies building SaaS products aimed at salespeople will often have their pricing compared to that of Salesforce. In other words, people might say to themselves: Salesforce costs $X per seat. Is this other product worth half of $X? Salesforce is the anchor.

I can tell you that I do this all the time. (Do you?) I’ll say to myself, condos of this build quality are selling for $Y in this neighborhood. Is this other neighborhood better or worse? If better, how much of a premium might someone apply to it?

So if you’re in the business of pricing products, you may want to give some thought to how your customers might be anchored when assessing your offering. Relative pricing comparisons allow us to rationalize dollars in our mind.

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