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Weber's Law in Pricing

Disciplines > Marketing > Pricing > Weber's Law in Pricing

Description | Example | Discussion | See also

Description

Weber's law states that a just-noticeable change in a given stimulus appears as a constant ratio of the original stimulus. This can be applied to pricing by identifying the point at which a price change is 'noticed' by the customer sufficiently to change how they think and act. In effect, this means that when the price is low, a small change in price is seen as significant, while higher prices may vary quite significantly within a 'normal' band of acceptability.

In practice this means you should be very careful of even small price changes when the price is low, but can make larger changes in expensive items with little effect on buying decisions.

Example

A car manufacturer significantly increases the price of a high-end item, with little change in resultant sales.

A soap seller increases the price by a moderate amount. Sales dip sharply.

Discussion

This highlights how we perceive number in a non-linear way. We are more sensitive to smaller numbers, particularly when we often buy low-priced items. Higher-priced purchases are typically less frequent and we hence think of them in different ways, for example thinking of a more expensive item as a 'treat'.

Higher pricing can also be affected by factors such as the price-quality heuristic, where people assume that an item of higher price is of higher quality and hence may be less sensitive to price variation, even assuming a price increase is paralleled by an increase in quality. Price perception is also affected by general price sensitivity and competitive prices.

In practice, Weber's law is not that exact, as doubling the price does not necessarily double the range of acceptable prices. The principle remains, though, that when prices are higher a small change seems less significant, and we should take note of this when setting prices.

Weber identified his rule in 1834 when studying weight lifting, such that when lifting a small weight, a small addition was found to be far more significant for the weight lifter than the same weight addition when the lifter was picking up a much heavier item. This was later used by Gustav Theodor Fechner in psychology. Weber's Law is hence sometimes called the 'Weber-Fechner Law'.

See also

Contrast principle, The Price-Quality Heuristic