Pricing is a complex topic – it is both strategic and tactical and is influenced by a variety of factors such as demand, costs, profits, and competition. But probably the most important part of pricing for marketers is its psychological impact. After all, there is a common phrase that “you get what you pay for.” But, is that always true?
Consider a recent experiment by Payless Shoes conducted in Santa Monica. Payless opened a shoe store named “Palessi” in a former Armani store and stocked the store with Payless’ low priced shoes and boots. The shoes, usually priced at $19.99 to $39.99 were examined by a group of influencers who were invited to a grand opening party and asked their opinion of the “designer” products.
The guests, who had no idea they were looking at low-cost Payless shoes, all praised the look, materials, and style of the shoes. That might not be so surprising, but what was astonishing was the amount that the guests were willing to pay for the shoes and boots. The top offer for shoes was $640 – a 1,800% markup!
What are you willing to pay?
Group Activities and Discussion Questions:
- Discuss the six steps for pricing: determining objectives, estimating demand, determining cost/profit relationships, select price level, set list price, and make adjustments.
- Discuss the importance of psychology in pricing.
- Show the Palessi videos: https://youtu.be/xpqqKRlqZfU and https://youtu.be/7YR2bovjfMU
- Payless Web site: https://www.payless.com/
- For Payless Shoes, divide students into groups and have each group work on any/all of the six steps.
- When setting the price level, assign each team a different model to use (demand-oriented, cost- oriented, etc.).
- Debrief the exercise. Compare the various pricing models and discuss advantages/disadvantages of each.
Source: Stanley, T. L. (28 November 2018). Payless opened a fake luxury store, ‘Palessi,’ to see how much people would pay for $20 shoes. Ad Week.