Pricing Concept: The Eight Psychological Affordances of Price

The price has the ability to produce a range of specific effects on the customer. They are predictable, influential, and actionable.

Among the most powerful and under-utilized aspects of price is its psychological affordance – its ability to produce a range of specific effects on the customer in a particular context.  When considering psychological affordance, think of the price as a stimulus that the customer encounters in a context that is unique with respect to time, place, and milieu. The customer’s psychology, the price stimulus, and the context interact to produce the effect.

The Customer-Price-Context Interaction

Consider a shopper in a grocery store searching for a can of organic tomato sauce. He actively checks the price tags of different brands displayed on the shelf and uses this information to decide which brand to buy. This is a customer–price–context interaction. The same person goes out to a bar later with some friends. The conversation turns to which vehicle each person in the group owns. Our shopper-turned-bar patron proudly boasts to his friends that he owns a Tesla sedan, cleverly injecting the price he paid, $65,000, into his conversation. This is a second customer–price–context interaction, quite different from the first.

It’s the same person, but the psychological state and the context are different. As a result, the price functions in dramatically different ways in the two interactions. The form of price is different, the way it is communicated is different, the purpose is different, and its effect is different. In the grocery store, the price is a product attribute and is used as a decision heuristic by the shopper. In the conversation with friends, price is employed as a social signal and it conveys self-identity to the person.  

It is worthwhile for managers to know the different psychological affordances of price and how they interact with the person’s psychological state – which we define by their perceptions, thoughts, emotions, motivations, and behaviors, and context. Each psychological affordance of price provides the manager with a range of opportunities to orchestrate the customer–price–context interaction and to pursue desired effects.

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In this post, I want to introduce you to the eight psychological affordances of price. Each affordance has nuance and potential for application which deserves detailed investigation. We will explore details of each psychological affordance of price in future posts.

1. Price as information.

The primary psychological affordance of price is its informativeness, not only in dollars and cents but in information about the object’s quality. A price tag works in the same way that a brand does, embedding meaningful information and conveying a variety of associations to the customer. A car’s price is $85,000. My lunch today cost $2. I saw a $75 bicycle at Walmart. Lacking any additional information, I am certain each sentence brings up a vivid image of the object in your mind. The informational affordance of price is particularly potent when the object’s price is extreme or atypical, either on the high end or the low end of what is considered the normal range. Just like businesses build brands, there is the potential to embed prices deliberately with desired and chosen associations.

2. Price as knowledge.

Unlike the immediacy of information, price can also be stored and used as knowledge. The customer’s price knowledge is a matter of degree, with total ignorance on one end of the spectrum and nearly perfect price recall on the other. Price recognition, being able to tell that a particular price is a regular price, and deal spotting, superficially being able to recognize that a price is a good or bad deal, fall somewhere in between. Very few customers are able to recall prices perfectly and a minority are able to recognize them. In most categories, far more customers have spotty or poor price knowledge. See the Bill Gates video for an example.

For managers, the main implication of the knowledge affordance is that small price changes are often not noticed by customers, especially when changes are frequent or unpredictable.

3. Price as a symbol.

Relatively superficial and pliable properties of the displayed price such as whether it ends with 9, 99, 5, 95, 0, or some other value (sometimes known as “non-standard endings”), whether it is a round number, whether it includes numbers that are widely considered lucky or unlucky, and whether it is written out fully in words, all imbue the price with meaning. This is the symbolic affordance of price and has powerful effects on how customers viscerally react to it.

The managerial implications of symbolic affordance are two-fold. First, relatively superficial and inexpensive visual changes to price can enhance or dilute its symbolism in powerful ways, influencing customer response. Second, the symbolic effects of price on customers are subtle, and in many cases, they can be more influential and durable than the effects of overt persuasive messages.

4. Price as a decision heuristic.

Customers use price in every buying decision in some way. Oftentimes, they will use a decision heuristic that involves the price. Customers can choose from a library of decision heuristics, shaped by their history and the buying context. For example, the price can act as an acceptability threshold – on the lower end and the upper end, in the decision.  It can also be used for prescreening when many alternatives are available, a preferred range based on research, a visual cue to attract the customer’s attention, a comparison value (e.g., our price $5, compared to competitor’s price of $8), a numerical anchor, and so on. The key insight for the manager is that in its affordance as a decision heuristic, comparison plays a key role. It is not enough to provide a single price. Giving the customer another benchmark is important.

5. Price as a product attribute.

The price is the product’s most important attribute. Customers use price as a measure of trade-off against other product features. The product’s price is the sacrifice, the pain, the hard-earned money given up, the hours of life energy exchanged, so to speak. The product’s other features are the benefits, the rewards gained or enjoyed during purchase, and then in every act of consumption over the product’s life. In its product attribute affordance, the fundamental question asked by the customer is, “Is the package of benefits and features contained in the product worth the price?” or in shorthand, simply, “Is the product worth the price?” The product attribute affordance allows the manager to quantify customer value in dollars and cents. It also helps to frame the challenge as getting the customer to say “yes” to the “Is it worth it?” question.

6. Price as negotiated value.

The idea of a fixed price is a relatively recent one. Prices have always been fluid in many contexts, and are becoming even more so. The negotiated value affordance of price explicitly acknowledges two facts: (1) the price is a value that can be reached through a process of discussion, negotiation, and consensus between the buyer and the seller, even for contexts where fixed prices abound, and (2) every price has a life. Price negotiation can be an open-ended and lengthy process as is often the case in B2B contexts, or it can be a structured and relatively narrow process where the customer is conferred some specific abilities to help establish the price. Examples of innovative negotiated value methods include Pay What You Want pricing and Name Your Own Price.

Participation by customers in establishing the final price is empowering. When the process is designed carefully and is congruent to the context, it adds substantial value to the product offer and to the customer-company relationship.

7. Price as a marker of self-identity.

In our role as consumers, we put a great deal of stock in our consumption activities to define who we are. A consumer may think of themselves as a savvy negotiator, a frugal buyer, an environmentally responsible shopper, a social elite, a trendsetter, a minimalist, a social media influencer, and so on. Because of its potent brand-like meaning generation, the price offers an efficient way to establish self-identity. The academic research on pricing is replete with examples of price-related concepts that come to be slices of an individual’s personality. People who are price conscious are reluctant “to pay higher prices for distinguishing features of a product if the price difference for these features is too large.” People who are coupon-prone are more likely to buy just because a coupon is available irrespective of whether they need the item.

Those who are value-conscious are interested in getting a good deal, and so on. The self-identity marker affordance has the potential to produce strong effects on the customer’s behavior even across contexts in predictable ways that the manager can use.

8. Price as a social signal.

In addition to marking the customer’s self-identity, a price can also help to portray their identity to the world. Any time the product’s price becomes a topic of conversation between individuals or in a group setting, the social signal affordance of price kicks it. This affordance covers a range of customer motivations and goals. When the aforementioned bar patron mentioned that his Tesla cost $65,000 he was virtue signaling through his ownership of an electric car and boasting about his wherewithal.

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Because price encapsulates so many meaningful associations, it can be used to signal any of them in a social setting. An extreme couponer may describe their recent exploits at the supermarket (see earlier video), a minimalist may describe how they have drastically reduced shopping, a materialist may brag about their most recent luxury brand purchase, and a travel buff may describe the cost of their recent trip. In all these cases, when the price becomes part of the conversation, it not only confers the associations that reside in it (a $40,000 Hermes Birkin bag) to the product or the consumer, but it also strengthens the associations between the price and other meaningful concepts (the $5 Subway Footlong sandwich, the Bed Bath & Beyond 20% off promotion), enriching the meanings in the price.

The crux is this. Understanding and then utilizing each psychological affordance in the customer-price-context triads that are common to a particular brand, product category, or industry can produce desired effects. Now that we have this framework in place, in future posts, I will explore the specific psychological affordances of price in more detail.