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If you and I walked into my bodega and they charged you $11 for a sandwich and me $14 for the same sandwich, I’d be annoyed.¹ But if I’m sitting next to my wife on the couch and she has a DoorDash promo code for 20% off and I have one for 10% off, I’m, like, “Great! Let’s use the better deal.”

In both cases, I’m getting a deal that’s worse than the person I’m with, but the emotional responses couldn’t be more different.

I use this story all the time when I try to explain different types of dynamic pricing, and it feels like one unpacking more broadly in the newsletter based on an article that ran in the New York Times this week about a non-profit that discovered Instacart was testing prices. The article (and the non-profit) had a bit of an “us against them” undercurrent to it, and hit on the frustration consumers feel when they know someone else paid less for the same dozen eggs from the same store via Instacart. 

Still, the article also quoted an economist who pointed out that consumers don’t have the sense of frustration when prices are lower for a happy hour or prices for an Uber jump when a concert lets out.

What’s interesting to me is not that the New York Times covered this topic², but that they spend so much time unpacking the emotional side of pricing and how it impacts us.

Our newsletter usually stays more on the practical side of things, and a topic of “how consumers feel” about prices maybe feels off brand. But I do think this is still very much in line with our normal theme exploration, because understanding what triggers consumer frustration as opposed to consumer delight is something that can inform how you “manage” emotions while remaining profitable. So many purchases are emotional decisions. As much as we talk about the numbers behind pricing, you also need to recognize and work with your purchaser’s emotions.

In the bodega example, I feel like the price was changed because of something the person at the deli counter decided about me. It was targeted unfairly at me personally and, maybe too strong of a word, predatory. But in the DoorDash example, my wife and I were both getting a deal and there was no indication that there was anything “personal” about getting less of a discount. Furthermore, I’m annoyed that at the bodega the list price was raised on me. With DoorDash, I’m just getting less of a discount — but I am still feeling grateful to be “getting a deal.”

We may think about demand curves and price accordingly, but consumers don’t have that in their heads when they’re shopping. Their emotions are usually tied to questions like: 

• Am I being respected or taken advantage of?

• Am I smart for getting this deal or stupid for paying this much?

• Am I getting a good deal?

When done well, I think price testing is actually a way to put the consumer and the brand on the same side. 

If you can provide a deal that triggers a dopamine hit for a customer while improving your profits, isn’t that a win for both? If you adjust prices when inventory is getting old, doesn’t clearing that from your warehouse benefit you while also benefiting the customer who didn’t pay full price (yet had the same need or want as other customers)? If you offer a bulk discount to bring in more cash before the end of the month, doesn’t that also benefit the customers who have the space to stock up at a lower price?

These practices — which I’m saying are a form of dynamic pricing — are socially acceptable today. Tailoring and customizing them for different segments them is also generally kosher. But it feels different when it’s the list price. 

The Times article gets a bit hung up here, and it seems to be because they were conflating price testing leading to higher prices and, therefore, higher profits for the business (at the expense of the consumer). Sometimes, higher prices are needed for profits. But not always. 

In fact, a study we published in Harvard Business Review found that about 2/3s of all price tests run on Intelligems suggested that brands would make more profits by lowering their prices. From that article (which you can read here): 

I don’t think anyone would have a negative emotional response to lower prices, and I think the understanding that prices will change will grow as consumers (and brands) continue to learn the value of aligned incentives through testing.

This is what created surge pricing, after all: A need to provide consumers with the service promised by incentivizing drivers with higher rates in crowded areas at inconvenient times.

Consumers, now, expect the dynamics, because the value to them is clear. We’re getting there with ecommerce, too.

1  This is entirely likely to happen, by the way. I’m fairly certain that the counter guy at my bodega randomly chooses the price when you walk up with your stuff.

2  The core reason Intelligems exists is Adam and I believe that price testing (and dynamic pricing more generally) is becoming an essential business practice for anyone who wants to succeed in a fast-paced industry like ecommerce.