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Ana the Psychic’s Emergency Readings

I was giving a talk in the Detroit area recently, and a business owner shared a story with me about variable price sensitivity that I think is just too great not to share.  He told me that he and his wife like to have a psychic reading done from time to time, and they have a favorite psychic, who is called Ana the Psychic.  Ana the Psychic books out months in advance for a normal reading, which costs $100.  He said that when he and his wife want to have a reading, they don’t want to wait months.  Oh no.  When they are in the mood for a psychic reading, they want one now!  So the rate for an “emergency reading” in the next 7 days is $250.  So this business owner and his wife pony up the larger fee for an emergency reading and go see Ana the Psychic when they are in the mood for a reading.

There are a lot of reasons I love this story.  I of course don’t know Ana the Psychic or the reasons behind her pricing strategy.  But I’m going to surmise a few things to illustrate how her approach could help some other businesses:

  • Ana the Psychic has created a segmented price strategy to ensure that she is being paid a premium for services that are higher value to clients. (“Soon” has higher value than “later.”)  More valuable things should be priced higher.  Where are you adding extra value to customers but failing to charge a premium for it?
  • (The following may not be true.  I’m just guessing.)  I have a sneaky suspicion that Ana the Psychic might actually consider the “emergency reading” her desired core offering.  She doesn’t want to lose out on the most price sensitive segment of customers, so she essentially created a discount tier to capture the most price sensitive customers.  (She can gives them a big discount but makes them wait 3+ months.)  I suspect Ana is doing a heck of a lot of “emergency readings” rather than this being an exception.  How can you create layers in your pricing to push customers towards the products and services you prefer to sell?  How can you create layers in your pricing to capture all the customers at the highest prices they are willing to pay?

(While I am no fan of cost-plus pricing, this strategy also has the benefit of making sure Ana the Psychic has higher pricing when her costs are higher.  This rests, of course, on my assertion that Ana the Psychic’s personal human costs of “urgent” short lead-time work are higher than planned long lead-time work out in the future.)