The video discusses the psychology of pricing, arguing that simply dropping prices is often the least effective strategy for businesses. The speaker explains that perceptions of price are subjective and heavily influenced by comparison points, rather than the absolute cost. An example is given of Indian food in the UK, which the speaker believes is underpriced because consumers are willing to pay more for French cuisine despite perceiving Indian food as superior. The core issue, according to the speaker, is that people struggle to define what 'expensive' truly means without a reference point. This is further illustrated by the use of payment plans like Klarna. The speaker uses a personal anecdote about purchasing a Dyson air purifier, where the initial price of £450 seemed too high, but the option of 'three payments of £150' made the purchase feel reasonable and acceptable, despite the total cost remaining the same. The speaker concludes by noting that even with an understanding of these psychological biases, they can still influence purchasing decisions.

Financian

Dropping the price is the last thing you should try. The psychology of price is really weird because things can feel expensive or feel cheap and it's got nothing to do with the headline price. It's what you're comparing it to.

I always thought by the way Indian food was massively underpriced in the UK because people who'd happily spend 120 pounds on a French meal would get [music] really pissy if they went out for an Indian meal and had to pay 40 pounds even though it's obviously better food. People don't really have an answer to the question is it expensive? They always go compared to what? I mean we all know this okay.

How many people use Klarna here? The joke I always make about Klarna is that three payments of 100 pounds feels completely different from one payment of 300 pounds. I was buying one of those Dyson air purifiers and I get to the final bit where you have to pay and it goes 450 quid. You go not paying that. >> [laughter] >> James is taking the piss. And then it says or you can have three payments of 150 pounds. I go oh yeah, that's perfectly reasonable. And I went and bought it. Now I've studied all these biases things myself for ages but it still worked on me.

Why Dropping Prices Is The Worst Thing You Can Do

Dropping the price is the last thing you
should try. The psychology of price is
really weird because things can feel
expensive or feel cheap and it's got
nothing to do with the headline price.
It's what you're comparing it to. I
always thought by the way Indian food
was massively underpriced in the UK
because people who'd happily spend 120
pounds on a French meal would get
[music] really pissy if they went out
for an Indian meal and had to pay 40
pounds even though it's obviously better
food. People don't really have an answer
to the question is it expensive? They
always go compared to what? I mean we
all know this okay. How many people use
Klarna here?
The joke I always make about Klarna is
that three payments of 100 pounds feels
completely different from one payment of
300 pounds. I was buying one of those
Dyson air purifiers and I get to the
final bit where you have to pay and it
goes 450 quid. You go not paying that.
>> [laughter]
>> James is taking the piss. And then it
says or you can have three payments of
150 pounds. I go oh yeah, that's
perfectly reasonable. And I went and
bought it. Now I've studied all these
biases things myself for ages but it
still worked on me.

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Why Dropping Prices Is The Worst Thing You Can Do

Transcription