How entrepreneurs are able to smell money right from your pocket to sell to you

Have you ever wondered why we buy everything at almost the same price irrespective of our level of income, including essentials like food or medicine? 

In a supermarket, the prices are the same irrespective of your socioeconomic status.

You can’t tell in advance if someone has more money. But entrepreneurs know how to smell the money!  That is what sets them apart. 

They differentiate the product or service so that you are enticed to pay a bit more. It could be using packaging, location of the supermarket, intended use, advertisement, or association with certain influencers. Why are mannequins white? 

Think of milk. The best milk is directly from the cow. But it goes through processing to last longer or for value addition into ghee, butter or cheese.  The value-added products are pricier as they target the more affluent.

Who buys cheese or butter?

The brand changes the price too. Not just for milk but many other products or services. 

By making the customer feel good or special, you can extract more money from them. Think of the iPhone. Is its price based on technology or status?  

Lowest price

Price discrimination and positioning help get money out of your pocket; they distort the law of one price. Entrepreneurs know you can’t go checking in every supermarket for the lowest price. You could do that online, but do you have time? Truth be told, we eventually settle on one kiosk, supermarket, barbershop, bar, or even newspaper. We are routine people.  

Positioning is creating an image of the product in the customer’s mind. What comes into your mind when you hear of Toyota, Maybach, iPhone, Tecno, Harvard, Alliance, and Turi, among others? Our politicians have lately been positioning themselves with catchy phrases and nicknames.  

We also pay different prices because of information asymmetry. The sellers know more about the product or services than you do. If a product is imported from country A or B, how can you confirm that? What is pixel? 

In some countries, subsidies take care of the poor, but as we saw a few years ago, subsidies are hard to police. 

Clearly, the market is very good at getting money from those who have. Kenya’s market makes it even easier, we are class-conscious.

Paying a higher price is associated with status and quality, and with time we accept it. Have you made money from discrimination and positioning?