When and how to raise prices

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This is a tough one, especially for associations who are reluctant to raise their meetings' registration costs for fear attendance will drop. I just read this article in Inc. which, though it's talking about retail, has an awful lot of interesting food for thought for meeting planners.

How do you determine what people are willing to pay? Study after

study has demonstrated that when it comes to purchasing decisions,

people are irrational. In one classic study, researchers asked

consumers whether they would be willing to travel an additional 20

minutes to save $5 on a calculator that costs $15. Most said yes. Then

they were asked the same question about a $125 jacket. Most answered

no. Now, rationally, $5 is $5, whether you're buying a calculator or a

jacket. But it's seldom that simple, according to Richard H. Thaler, a

professor at the Graduate School of Business at the University of

Chicago and author of "Mental Accounting Matters," an article published

in 1999 in the Journal of Behavioral Decision Making.

"People make [purchasing] decisions piecemeal, influenced by the

context of the choice," writes Thaler, who won a Nobel Prize for his

work in behavioral economics.

As it happens, the greatest influence on the context of a

purchasing decision is whether the consumer believes the price is fair.

Expectations play a big role in this. In a 1985 study conducted by

Thaler, people were asked to consider the following hypothetical

situation: You're lying on a beach on a hot day and you crave a cold

beer. A friend offers to get one and wants to know what you're willing

to spend. When she offers to go to a small grocery store, the median

response is $1.50. But if the friend is buying the same beer at the bar

of a fancy resort hotel, the price jumps to $2.65. Context and

expectation drive the price up nearly 80%. Because we expect to pay

more for a beer at a resort, we're willing to pay more.

So, how do you deal with irrational decision-makers and their expectations? The article says, and I agree, that communicating the real value, and showing why it should supercede the customer/attendee's perception of that real value (only if it's lower, for goodness sake!), is a good start. Anyway, read the whole article--it's a great primer on pricing.

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