I assisted a friend to purchase an assembled computer recently. There were 2 equally good vendors who offered the goods. One of the vendors was close to where we live while the other was about 30mins away. We approached the vendor nearby (In J P Nagar) and bargained on the price (common while purchasing assembled goods). The vendor nearby quoted INR 27,300/- for the same configuration while the other vendor was willing to go down to INR 27,150/. My friend settled to place an order with the vendor nearby as the price differential was only 0.5%.
Next we went to the nearby bookstore to browse some books. Friend decided to (after my rave reviews) pick the "The Black Swan" priced at INR 495/-. When we approached the desk, the gentleman behind the desk advised that a paper back version of the book discounted at 30%, is available in another store near Indiranagar (which is 40mins drive). We drove to Indiranagar to purchase the book.
Reflecting upon the events, the mental math made for NOT travelling an additional 30mins to save 0.5% off a purchase price, was offset (on the same day) by the mental math of saving a 30% off another product for which friend decided to drive 40mins.
In absolute terms, the savings in either case was INR 150/-. We clearly choose one versus the other.
Basic observation using this as an analogy for product pricing
(Eliminating the details around same-product versus like-to-like price comparisons)
Having a list-price of your product set to a ideal-ask price and then providing a relative discount to the list price has an edge compared to having a lower-list price and not offering discounts (while the absolute sale price being the same).
Behavioral Economics supports these observations and conclusions.
Worth pondering ?
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