The Price Is a Signal (Not a Number)
Most people think pricing is maths.
It's not.
Pricing is psychology disguised as a spreadsheet.
The same product, at the same price, in two different contexts, will be perceived as completely different value propositions. A £50 steak at a white tablecloth restaurant feels like a reasonable indulgence. The same steak at a roadside café feels like a scam.
Nothing changed except the frame.
Understanding this changes everything, whether you're setting prices for a business or negotiating your own compensation.
The Equation That Actually Matters
Every purchase decision, every negotiation, every "yes" or "no" runs through the same mental calculation:
Net Value = Perceived Reward − Perceived Pain
The higher the net value, the more likely the decision.
Notice what's missing: the actual price. What matters isn't the objective number. It's the perception of value versus the perception of cost.
This gives you four levers to pull:
Increase explicit value (what they tangibly get)
Increase implicit value (status, identity, emotional payoff)
Decrease explicit cost (the price)
Decrease implicit cost (effort, friction, risk, time)
Most people only think about lever 3. Operators work all four.
Anchoring: The Number That Sets the Game
When Steve Jobs introduced the iPad, he didn't compare it to a laptop. He compared it to market expectations.
He put "$999" on the screen. Let it sit. Then crushed it with "$499."
The actual price hadn't changed. But Jobs understood something fundamental: the first number creates the anchor. Every subsequent number is evaluated relative to it.
This is why negotiation research consistently shows that final outcomes are anchored by the first offer. Whoever sets the opening number shapes the entire conversation.
For businesses: Show the premium option first. Present the higher anchor before revealing the price you actually want them to pay.
For salary negotiations: Never let them anchor first. When asked "What are your salary expectations?", give a specific number at the top of your range, or redirect: "I'd like to understand the full scope of the role before discussing compensation."
The Decoy Effect
The Economist once offered three subscription options:
Web-only: $59
Print-only: $125
Print & web: $125
Nobody chose print-only. It seems useless. But when they removed it and offered just two options, subscriptions dropped 43% in value.
The "useless" option wasn't useless. It was a decoy that made print & web look like a bargain by comparison.
The application: If you want people to choose option B, create an option C that's clearly inferior to B but similar in price. The comparison does the selling for you.
Context Creates Value
Researchers played French music in a wine shop on some days, German music on others. On French music days, French wine outsold German 5:1. The ratio reversed when the music changed.
When asked why they chose their wine, customers mentioned taste, value, label design. Not one mentioned the music.
They didn't know their decision had already been made.
The implication: The environment in which price is presented matters as much as the price itself. A proposal delivered in a premium setting will be valued differently than the same proposal over email.
Tactics for the Employed: Negotiating Your Package
Everything above applies when you're the product being priced.
Set your own anchor. Research comparable roles, add 10-15%, and state that number first. The negotiation will orbit around it.
Expand the frame. Salary is one number. But there's also equity, bonus, title, flexibility, development budget, start date, review timing. When one lever is stuck, pull another. "If salary is fixed at this level, can we revisit after six months based on performance?"
Make the cost tangible to them. If you're being underpaid, you'll eventually leave. Hiring your replacement costs 6-12 months of salary in recruitment, onboarding, and lost productivity. Frame your ask as the cheaper option: "Investing in retention now is more efficient than replacement later."
Reduce their perceived risk. Guarantees work in salary negotiations too. "I'm confident I can deliver X result in the first 90 days. Can we tie a salary review to that milestone?"
Never negotiate against yourself. State your number. Then stop talking. Silence is uncomfortable. Most people fill it by lowering their ask. Don't.
The Lesson
Price is not a fact. It's a signal.
It signals quality, status, confidence, positioning. It shapes expectations before a single word is spoken.
When you understand this, you stop optimising for the lowest price or the highest salary. You start engineering the context in which value is perceived.
The product doesn't change.
The frame does.
And the frame makes all the difference.
