In which I ask a lot of questions about pricing, and answer none of them

It was a tweet from Rags Srinivasan, via Leigh Caldwell, that got me wondering. "If a designer shoe goes up from $800 to $860, who notices?"

Certainly not me; I operate at the grubbier end of the shoe market. Caldwell, however, commented, "When behavioural economics can answer this, we've won." Caldwell's blog Knowing and Making and Twitter feed are both essential reading; they're the sort of effort that make one wish they had studied economics at university (or even at school). I know next to nothing about either pricing or behavioural economics (Caldwell's specialities) but I have read snippets by Ward Edwards and others on the marginal utility of money and perceived price, and it set me on a daydream.

The starting point is that the actual price of a product, and the price that the consumer thinks it costs are different entities. The relationship between actual price of a good, and its perceived price by a consumer is not necessarily linear. It might also depend on the product, sector, economic circumstances or, of course, the individual consumer and his whims. If you ask people "which do you think is more expensive, good A or good B?" for a range of products, then you can roughly calibrate a "perceived price" scale - which, after all, is going to drive the purchase decision far more than the actual price of the product.

This got me wondering: if the perceived price depends on the individual consumer, for a given product, under given test conditions (economic circumstances, etc), if you were to plot a histogram of those perceived prices, what would the dispersion of the curve be? And how does perceived price change depending on the consumer's income, and indeed over time?

And how would those dispersion curves be affected from product to product? This would be particularly interesting when comparing two products in the same sector. The acid-test question would be, if two competing products happened to be the same price, which would be perceived as more expensive?

These aren't just "nice-to-know" theoretical questions. If your company's product is the same price as a competitor, but people think it's more expensive, then this will very likely have an effect on the purchase decision, all other factors being equal. Although whether it's a good thing to be perceived as more expensive is not necessarily clear cut, either; it might be offputting (consumers might opt for the commodity they think is cheaper) but on the other hand if "more expensive" equates to "more desirable" then it may be an advantage ( - although then, presumably, that brand's prices are set too low.

It is logical that the relationship between actual and perceived price would vary across product categories, frequency with which they are bought, price as a percentage of disposable income, and whether the product is an "essential" commodity or a luxury.

So perceived prices - and indeed perceptions in the rate of change of price - will surely be different between bus fares, beer, washing powder, a packet of crisps - or designer shoes. Perceived value for money may depend on external factors as well. The mix of online and offline word of mouth, advertising, and economic trends could all contribute.

It is one thing to ask "who notices?" but the other question, of course, is "at what point does it become a problem?" At what point does a consumer go elsewhere to a competitor, or change their habits? What are their motivations for buying the product in the first place, and where does value for money (perceived, of course) fit into the decision-making process?

This leads on to a further question: how often do people compare changing prices across categories? Aside from the odd nostalgic "I remember when a pint cost less than a loaf of bread", I suspect it's not very often - after all do we really compare the utility and value for money of a litre of petrol compared to a litre of Coke? How often do we consider the price of a month's travelcard, and evaluate it versus a month's electricity? Consciously, I'd argue, rarely - but subconsciously? And even if we do, how often do we make conscious decisions to spend money on one luxury over another, or to sacrifice a luxury for a commodity, or even vice versa? Surveys ask blandly "Do you think you have cut back your spending in the last 3 months?" but without probing the thought processes that go into belt-tightening or splurging, those sorts of questions strike me as next to meaningless. Knowing that people have less disposable income is one thing, working out behavioural patterns and irrational decisions, and how to make sure that as the manager of a gym your customers sacrifice a meal in a restaurant each month, or even shiver in darkness, rather than give up their membership - that's the sort of question we need to be asking. Are those purchasing decisions rational in a recession, and how can we find them out?

Putting people on the spot in surveys, asking "is product X good value for money?" always seems contrived, and I have instinctive doubts about the validity of answers when compared to an unprompted population. Worse still are questions along the lines of "how much would you be willing to pay for product X?" I have filled in surveys of this type before, and consistently give a figure lower than what I'd "really" be willing to pay, in a subtle effort to drive down the price of my favourite products, and I suspect this will be true of many people. I certainly can't imagine anyone saying "I think this product should cost more than it already does" - although perhaps someone can enlighten me to the contrary!

A lot of questions, then. One final one - where can I read more about the psychology of pricing, and hopefully find the answers to some of them?

Brand cathedrals

An interesting question popped up in a pub quiz this evening: which brand overtook Coca-Cola in 1996 to become the world's most recognised brand?

We worried over this particular bone ages, long after the answer papers had been collected. Clearly it would have to be a brand that was accessible across cultures and socio-economic backgrounds, which would rule out all luxury goods, probably including consumer electronics (so Sony, all the rage at the time with the CD Walkman and Playstation everywhere, were out). 1996 was pre-internet, so a few years too early for Yahoo! et al. We muttered about all the ubiquitous FMCG brands we could possibly think of, but in the end plumped for Nike. We were wrong (and kicked ourselves when we were told the answer*).

Talking of truly iconic brands, a couple of years ago, in full tour guide mode, I showed a Thai teenager around town along with her mother. I tried to pick a mixture of the obvious sights and one or two things off the beaten track, but there was only one thing she wanted to see above all else: that temple to the consumerist gods - the Apple store. Only in the last few months did I finally get around to going to there myself, along with another cathedral just a stone's throw away: Niketown.

Personally I found the Apple store oppressive, but then traditionally I've had slight Luddite tendencies. The store perfectly mirrors the brand's ideal: achingly trendy, lots of clinical-white space, enthusiastic staff showing the products off in all their glory. Yet I found the place wholly inadequate: I was there to buy a phone cover as a present, and received no help at all despite armies of blue-t-shirt clad staff. On going up to the counter to pay, I was expecting to have to be the subject of a battle between the half-a-dozen staff members there to process my purchase, but no: the sales counter upstairs doesn't sell anything, it's just yet another bench for them to show things off. The sales process takes place on the ground floor, hidden away at the back. For me the Apple store was just too sterile, and trying too hard for its own good, but the throngs of tourists flocking in would evidently disagree.

Niketown is another matter: it's basically a museum devoted to the brand. It's brilliantly done. Like Apple, they must be paying millions for the premium site, right on Piccadilly Circus, but it's the kind of place that raises brand equity just by being there. This one truly is a temple: come and worship decades of trainer history, along with a lot of neon lighting and various tempting "bespoke" offers. The biggest praise that I can pay the place is that I wandered around actually coveting their goods, nay lusting after them, which I didn't find with the Apple store. Nike has only been around since 1978 but they managed to create a sense of history dating back further than that; although to the teenagers who flood the place, 1978 probably feels prehistoric anyhow.

But can someone please explain to me what the M&Ms World in Leicester Square is about? I haven't managed to drag myself in, but surely four floors devoted to little glorified Smarties (in fact is there any difference?) doesn't sound inspiring. There has to be a reason to go there, and for the casual Leicester Square visitor, I would have thought a trip to the Ben & Jerry's cafe would make more sense. Or am I out of touch?

*The answer was McDonald's.

Ontroerend Goed's "Audience" to come to Soho Theatre

Fantastic news announced today - Ontroerend Goed's latest production, Audience, currently taking place in Edinburgh at St George's West, will do a London stint in December. If reviews are anything to go by, it promises to stay true to the Ontroerend Goed blueprint: challenging, genre-defying, and completely unique.

Tickets go on sale in a couple of weeks, apparently. Don't sleep...

Proud

These are crazy days we're living in. The whole country seems to be soul-searching and scratching their heads for ever more implausible theories for the reasons behind the riots. Almost all of them are utter BS.

I could witter on about critical mass and mob mentality and the fact that the rules of the game have changed so that nothing is seen as unacceptable any more and how "game" may indeed be the right word to describe the attitude of the participants and how all the whining about cuts and poverty and politics and the way the whole thing was caused by Twitter are way, way off the mark. But it would just be drivel adding to a swollen morass of existing drivel.

So I won't. I'll just say that London remains the best city in the world and we'll stay strong. Once I've finished work tonight at my day job I'll be on my way in to volunteer for London for a 12-hour stint. It's times like these when I can cast aside the inefficiencies, the frustrations, the annoyances and inconveniences, and just be proud to be part of London's Finest Family. It's times like these that make us realise why we signed up.

(Original at http://www.flickr.com/photos/pixel-eight/6024429000/)

***Update*** not often you see this (the first 15 seconds or so).

Impressionists and more at the National Gallery

It's easy to ignore the National Gallery. The front is now firmly guarded by human statues and reggae buskers, while the gallery itself seems too "obvious" to venture into. Nonsense: it's not world-famous without reason. And with late opening on Fridays, there's no excuse not to drop in for an hour or two after work.

Huge galleries can be intimidating - just the thought of going round dozens of rooms is tiring. I tend to stick to dipping in for an hour or so - catching a few of my favourite rooms and then heading off before it becomes more of a chore than an enjoyment. On my last visit I started with the Impressionists as I usually do, but then branched off into some earlier works. Here were some that really stuck out for me last time:

Monet - The Thames below Westminster: starting as I always do in the Impressionists' room, this one always gets me and I spent a while with it the other day. A smooth wash of sky and lack of colour evoke acrid smog brilliantly. Pale grey, yellow and beige are just so London all the way. The Thames is so iconic, so stolid, when it's portrayed like this it makes me proud to be a Londoner! A classic for all time.

Monet - The Japanese Bridge:  Tangles of lush green creepers dominate the work. A true Impressionist work: let your eyes drift slightly out of focus and be overwhelmed by the greens. This jpeg doesn't do it justice. The paint is smeared on roughly, almost aggressively; it's got a wild, jungle feel to it.

Eugene Delacroix - Christ on the Cross (1853): the worm's eye view is conventional enough, but the lighting, with Christ's face almost completely obscured by shadow, is startling. The pale skin tones suggest both the impending thunderstorm and Christ's vulnerability.

Constable - The Hay Wain: large, detailed pastoral scene from Constable's native Suffolk. This is so different from Monet's painting of London, but in a completely different way, this is majestically English.

Turner - The Fighting Temeraire, 1838: a grandiose but brilliantly portrayed sunset wrestles for attention with the main attraction - a warship being towed by a tug towards its doom. While the sunset catches he tug and highlights it, and an arrogant smear of rust coloured smoke points rudely at the warship, the Temeraire is pale, almost translucent: already nearly forgotten. Brilliant.

Turner - Rain, Steam and Speed - The Great Western Railway (1844): an incredible work anticipating Impressionism. You can almost smell the smoke, be bowled back by wind and dust from the hurtling train. Nowadays inventions are confined mostly to new mobile apps; 150 years ago they were revolutionising transport for ever. What dull times we live in...

Guercino - Elijah fed by Ravens (1620): I'm pretty ignorant about Baroque art and I tend to get impatient with it, but this large piece is both dramatic and atmospheric. Elijah is presented as a figure of great power and wisdom.

Pissarro - The Boulevard Montmartre at night (1897): a reminder why Paris is the second greatest city in the world! Ignore the crowds looking at Seurat's overrated Bathers at Asnières and head for this one instead.

Cezanne - An old woman with a rosary (1896): this bleak work shows a world-weary woman - apparently a former nun - engrossed in her own decline. Her vulnerability and pathos are palpable.


There's an interesting-sounding exhibition of Norwegian and Swiss landscapes at the moment - admission free.