About the subjective value of money

Photo by: Ryan Hyde

Since I was a child I had a money box I took care of. Each week my parents gave me pocket money, which I put consciously in my money box. From time to time I went to my shelf, where I had located my money box, and shook and weighted it.

How much money did I save this time? I was not eager to spend it on something, but I was curious to see its amount. After a period my parents and I went to the bank and we took the money box to be opened with the magical key. This was a very special moment. I was very excited to see how much it was this time. The banker opened the money box, and through all its content into the money counter.

The time was a special one: For the first time I received the money cash. I watched every detail of the procedure taking money count and the banker came towards me, to give me the money. He said: “Well, you have collected a lot, it is about 10 Deutsche Mark, but you know that recently Germany is part of the European Union and the currency has chanced therefore to Euro. So we will hand you the money in Euro, so this makes about 5 Euro.” My excitement suddenly disappeared, and I felt very disappointed only receiving the half, of what I had collected, it was like being stolen.” I also asked my parents, if this is true. They confirmed this. The rest of my day was gone. This was the first time, I learned about the subjective perception of money.

Everyone of us, has one`s own perception when it comes to money, especially when we also have to give it away at shopping. When something seems to someone expensive, the other finds it normal or cheap. We have a feeling, similar to an inner sensor, which says to us, “stop, this is too expensive”.

In this article, I want to present 6 ideas on how consumers “see” prices:

  1. Consumers split price spectrum into pieces: for example 4.95 Euro are not 5 Euro, and 2.98 Euro are something in between 2 and 3 Euro.
  2. The first number of a price falls the most into the consumer`s attention: 9.95 Euro is 9 Euro and something. The pricing differences decrease from left to right.
  3. Consumer see the maximal price as a round value e.g. 250.000 Euro for a new house. They expect that the true price to exceed this value, because there are other costs, which you do not expect.
  4. If the price is below a round value e.g. if the price is 9.50 Euro then it is below 10 Euro, which is the round value. Consumers get the impression that they save something.
  5. A price limit of a good is at 50 Euro. If the sale period comes and the price sinks  20%, 30% ,50% or 70% off then the demand will explode.
  6. If a price is broken (e.g. 2.75 Euro, 4.34 Euro, 1.71 Euro, 2.38 Euro), then the consumer get the impression that it was well-thought by the vendor.

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