Speed Review: The Price Is Wrong

Understanding What Makes a Price Seem Fair and the True Cost of Unfair Pricing

by Sarah Maxwell, Ph.D.

Speed Review: The Price Is Wrong
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No Fair! Why Playing Nice Is Essential to Pricing

The concept of “fair” is not the sole province of children. According to Sarah Maxwell, author of The Price is Wrong: Understanding What Makes a Price Seem Fair and the True Cost of Unfair Pricing, consumers spend a considerable amount of time and energy evaluating and reacting to fairness in pricing.

According to Maxwell, the issue of fairness as it relates to pricing is as old as the circulation of money itself. She traces this history back to the 13th century, examining how thinkers like Thomas Aquinas drew upon Aristotle’s writings to define what a fair, or just, price involves. While the market soon began concentrating on the impartial forces of supply and demand to determine price, Maxwell argues that “More recently, however, the intrinsic fairness of the market has been questioned. And there has been a resurgence in what is meant by a just or fair price, what are its antecedents and its consequences.”

The Elements of Fair
Maxwell deconstructs fair pricing, examining its component elements through the lenses of both personal and social fairness. She utilizes these distinctions because the difference between personal and social fairness is “the difference between a price you prefer because it meets your own personal standards and a price you judge acceptable because it meets society’s standards.” It is a violation of social fairness that elicits strong negative response among consumers, and Maxwell illustrates how social fairness is the benchmark by which companies should determine pricing.

Maxwell details psychological and sociological elements such as emotions, expectations, the desire to punish perceived transgressions, and trust, discussing in depth how each factor combines to form a model for fair pricing. Through the use of multiple examples and real-life applications, Maxwell illustrates the important part each of these concepts plays in how we perceive fairness in the marketplace.

Applying the Concepts
Maxwell does not leave her reader adrift in a sea of abstract concepts. She provides a range of real-life applications to illustrate her model. In one particularly interesting example, she discusses tipping and how tipping wait staff has become a social norm in the United States, despite this country’s initial objection to the act, while it has since lost favor in Europe, where it originated.

She raises intriguing questions on this subject, such as why it is not acceptable to tip your mother-in-law for a dinner well done, but it is expected that you tip your server in a restaurant. Maxwell utilizes examples, in addition to tipping, including taxes, negotiations, and culture to demonstrate how consumers react to unfair pricing, basing many of their actions and reactions on emotional response, and how the relationship between buyers and sellers is a dynamic, ever-changing one that is most beneficial to both parties when an essential level of trust exists between them.

For the Customer, Not the Seller
In The Price Is Wrong, Maxwell presents a thoroughly-researched, well-documented examination of price fairness. However, her approach is more suited to the general public rather than the business person already enmeshed in the nuanced dance of providing consumers with what they perceive as fair pricing while still garnering profit for the company. Her final chapter does briefly touch upon the practices of effective fair pricing; however, it is her explanation of how consumers react, often viscerally and emotionally, to pricing that will prove the most useful for understanding the importance for fair pricing practices.

Maxwell presents her arguments in a clear, well-organized manner that avoids slipping into the abstract through the use of concrete examples, many of which serve the dual purpose of entertaining as well as educating her reader.

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