Why you shouldn’t set prices based on value created

I was talking to a friend who has subscribed to an online publication called The Ken. This subscription costs him around Rs. 2000 per year and he gets access to hundreds of exclusive in-depth, well-researched articles on Indian startups. I asked him if he’ll renew, and he said probably not as he didn’t think that he got worth his money from the 15-20 articles that he had read. This conversation was happening at a bar where the average bill per person comes to be about Rs. 1500. I pointed this to him and we wondered why he was willing to pay Rs 1500 for a 3-hour sitdown at a bar but doesn’t find it worth Rs 2000 to read 15-20 well research articles. ...  Read the entire post β†’

Endowment effect in business

We value things we own much more than the things we don’t own. It’s called the endowment effect. This goes well with our intuition that other people don’t value our things as much as we do. But it isn’t just that other people devalue what we have. Experiments show that if we reverse the roles, our willingness to pay is much less for the same product that we were earlier owning (and were demanding a high price for).

How does this disparity in selling price and purchase price occur? It occurs because buyers don’t have perfect information about a product and cognitively what “jumps” in the mind of a seller is benefits of the product or service (while seller focuses on costs). ...  Read the entire post β†’