Pricing is … a Zero Sum Game

How is this possible?  In the last blog we wrote that pricing is win-win.  Aren’t win-win and zero sum games contradictory?

The phrase “zero sum game” means that when one person gains another has to lose.  Think of a pie.  If you get a bigger slice then there is less for me.  Zero sum means we have to split what is there. Win-win means we find a way to grow the pie and share the growth.

We saw that pricing is win-win because both the company and the customer are better off after the purchase transaction than before.

However, let’s look at this from a different perspective.  After a customer has made a choice to purchase your product, in her mind she says something like, “the most I will pay for this item is $100.”  Now, it’s a zero sum game where you and she are trying to decide how much she will pay.  In other words, who gets how much of the $100.  She may negotiate with you.  She may wait for a sale.  She wants the lowest price she can get.

Of course you want as much of the $100 as you can get.  You don’t know the $100 number, but you do your best to estimate her willingness to pay and try to charge her as close to that as possible.  It really is a game where the more you get the less she keeps.  You are splitting the $100.

Prior to the shopper deciding what/where to purchase, pricing is win-win, where both sides gain from doing a transaction over not doing a transaction.   However, once the choice has been made, the fact that there will be a win-win situation has already occurred.  Now you’re simply negotiating, which is a zero sum game.

Of course, you can’t always tell when the decision has been made.  The customer won’t tell you and will still ask for a discount.

Here is an example.  Shop at Macy’s (or probably any higher end store), find something you want to buy then walk up to the register and ask for a discount.  Most of the time you will get one.  Wow!  If you’ve already decided to purchase why would they give you more of a discount?

Your lesson: Learn to tell when the purchase decision has already been made, then stop negotiating on price.  If your price was too high the decision wouldn’t have been made.  When your customer finds ways to get discounts after the choice decision has been made, you are simply giving your money to your customer.  It’s a nice gesture, but not necessary.  If you’d like to give money away as a nice gesture, please email me.  I can help.

 

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Mark Stiving, Ph.D. – Small Business Pricing Expert

Photo by Kaptain Kobold