In Competitive Markets, Perceived Value is Determined by Consumers

In competitive markets, perceived value is determined by consumers, mostly, that is. Let’s listen to “The story of the Black Pearl” to get a better idea of what I mean. With the outbreak of WW II, James Assael, an Italian diamond dealer, left Europe for Cuba. He made a good living supplying the US Army with good quality watches because he could source the diamonds from Switzerland.

At the end of the war, the US Army no longer had the same demand for watches, so Assael found himself with a stockpile of watches. Japan wanted watches, however, had no money, so they bartered with pearls which they had by the thousand.

Eventually, Assael became known as the “pearl king”. He met someone who had purchased an atoll where the Oysters produced black pearls. This person had tried to sell them but said there was no market. Assael waited a year until some better specimens came along and contacted Harry Winston the famous gemstone dealer.

Harry Winston agreed to put them in his 5th Avenue Store with a ridiculously high price tag. They were strung along diamond, rubies, and emeralds. At the same time, Assael ran a glossy magazine advertising campaign. The pearls were soon seen around the necks of the wealthiest women in Manhattan.

Assael had taken something of questionable value and turned it into an object of desire. [From Dan Ariely’s book, Predictably Irrational] I tell this story my students in my school where I work. Getting a degree is like this black pearl.

For people who want to be successful, it is important to recognize what was happening here. The black pearl became desirable because it was set among gemstones known to be valuable. The price tag was simply set arbitrarily high.

Because there had been nothing like this before there was nothing to compare it with. So Winston’s necklace became what is known as an ‘anchor’ price. All other black pearl necklaces would be compared with it. Today, the same principles apply to online business and online marketing. Making money online can be tricky, at times, but also that it nothing new, is it?

Behavioral economics

OK, I know the title sounds a little scary. Basically, behavioral economics is about buyer behavior.


For people in work from home careers, the way your potential buyers respond to an offer is very important. Particularly if you have an internet-based home business. This is because your ’store’ is open 24/7 365 days a year. So if you want to increase your income then an understanding of buyer behavior will allow you to tweak your offer, and hopefully increase interest.


The traditional way of looking at economics is based on supply and demand. Supply dries up, prices go up, and fewer people are likely to purchase (demand down). Supply increases, prices drop and more people are likely to buy (demand up).

These are known as market norms, they govern all sorts of behavior. In this picture of the world, the buyer is always making rational decisions. Well, Dan Ariely came out with a bestseller called Predictably Irrational.

The Financial Times called it ‘Unmissable reading’. He basically says we like to think our decisions are rational, in actual fact, they are often the opposite; irrational. In addition with an understanding of those irrational patterns of thought, marketers can predict what a person will do, hence the title of the book, Predictably Irrational.

I will finish with an example of why most buyers are irrational when making a purchasing decision.

Someone sees an advert on a web page for an Ezine subscription on Golfing (he is an avid Golfer) and the subscription is $49 a year. Will the person subscribe? In all probability, the answer is no. Why? Because we all lack an ‘internal value meter’, we are unable to choose because we have nothing to compare it against. As a marketer, you need to supply that choice.

There are several ways you could do this. You could offer three subscriptions, monthly at $5 per month, quarterly at $12, and annually at $45. Most people will go for the middle option according to experiments carried out many times. This is an irrational decision because it is not the cheapest option.

Here is how the buyer sees it. They are unsure how good the Ezine is so they to avoid getting locked in for a year, even though this is the cheapest option they ignore that price. They realize $5 a month is $60 a year, the most expensive they ignore that.

The middle option of $12 times 4 equals $48 (just $1 short of your original one only option) now seems the best because they can pull out after a quarter if they want to.

However, another piece of irrational behavior will now kick in ‘inertia’, at the next quarter provided you provided quality content they will think, ‘It’s only $12′ and keep buying. You make an extra $3 above the annual subscription rate.