The Personal MBA

Master the Art of Business

A world-class business education in a single volume. Learn the universal principles behind every successful business, then use these ideas to make more money, get more done, and have more fun in your life and work.

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What Is The 'Pricing Uncertainty Principle'?

The Pricing Uncertainty Principle states that all prices are arbitrary and malleable. Pricing is an executive decision. You can charge whatever you want!

The key is being able to support the asking price for a customer to accept it. You must be able to provide a Reason Why the price is worth paying.

Keep in mind that, in general, people prefer to pay as little as possible for what they want (with some exceptions, discussed in Social Signals).

Josh Kaufman Explains The 'Pricing Uncertainty Principle'

One of the most fascinating parts of Sales is what I call the Pricing Uncertainty Principle: all prices are arbitrary and malleable. Pricing is always an executive decision. If you want to try to sell a small rock for $350 million dollars, you can. If you want to double that price or reduce it to $0.10 an hour later, there's absolutely nothing stopping you. Any price can be set to any level at any time, without limitation.

The Pricing Uncertainty Principle has an important corollary: you must be able to support your asking price before a customer will accept it. In general, people prefer to pay as little as possible to acquire the things they want. (With some notable exceptions, which we'll discuss later in Social Signaling.) If you expect people to pay you perfectly good money to buy what you're offering, you most be able to provide a Reason Why the offered price is worth paying.

It's difficult to support a price of $350 million dollars for a rock-unless that rock is the Hope Diamond, a 45.5 carat deep-blue diamond with a long and distinguished history.

The Hope Diamond is currently owned by the Smithsonian Natural History Museum and is not for sale. If the Smithsonian decided to sell the Hope Diamond, however, they could easily set an asking price of $1 billion. What's to stop them?

Auctions are an example of the Pricing Uncertainty Principle at work-prices change constantly, rising in proportion to how many people are interested and how much they're each willing to spend.

By setting a low starting price and allowing potential buyers to bid against each other, auctions are typically an efficient way to establish a true market price for something that is difficult to reproduce and where no comparable items are already in the market. That's why rare items like the Hope Diamond-if they're sold-are typically sold at auction. The most expensive diamond ever sold was the rough 507.5 carat Cullinan Heritage diamond, which went for $35.3 million dollars at auction. Not bad for a rock.

Questions About The 'Pricing Uncertainty Principle'


"Everything you want in life has a price connected to it. There's a price to pay if you want to make things better, a price to pay just for leaving things as they are, a price for everything."

Harry Browne, author of Fail-Safe Investing


From Chapter 3:

Sales


https://personalmba.com/pricing-uncertainty-principle/



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The Personal MBA

Master the Art of Business

A world-class business education in a single volume. Learn the universal principles behind every successful business, then use these ideas to make more money, get more done, and have more fun in your life and work.

Buy the book:


About Josh Kaufman

Josh Kaufman is an acclaimed business, learning, and skill acquisition expert. He is the author of two international bestsellers: The Personal MBA and The First 20 Hours. Josh's research and writing have helped millions of people worldwide learn the fundamentals of modern business.

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