Adding a decoy led 52% customers to choose expensive option | Product Pricing

Product Pricing tips

Welcome to the Series: 1000 Demand Generation Ideas – In this series, I share 1000 actionable Demand Generation ideas with examples for you that you can use for your marketing campaigns. Idea: 999 of 1000.

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You are making your way through the web, and you run into this ad.

 

Dan Ariely

(Version 1: All three options)

Which of the three options would you pick?

  1. Web subscription: $59.00
  2. Print subscription: $125.00
  3. Print & Web subscription: $125.00

As I read options 1 and 2, I leaned more towards option #1 because in this day and age, do I need a print subscription, especially when it’s more than double the price.

Then, I saw option #3, hmmm $125 for both, Ummm that did not sound that bad since now I can get both.

What happened here?

When I had to choose between option #1 and #2, $125 felt expensive, but when I saw option #3, all of a sudden $125 didn’t seem that expensive.

What gives?

The marketing geniuses at the Economist knew something important about human behavior – we choose things in absolute terms.

When we are not aware of how much a product should cost, we look for comparison with similar products or other options with the same product and make our decisions accordingly.

We focus on the relative advantage of one thing over another and estimate value accordingly.

Dan Ariely, one of my favorite authors, took this example further, he wanted to test how much option #2 was influencing our decision. He created a new version (he ran an AB test) and asked MIT Sloan students to choose from one of the following options.

First, he showed Version 1 (shown earlier) to 100 students and then Version 2 (shown below) to different set 100 MIT Sloan students.

Dan Ariely

(Version 2: Print only, option removed)

The results were staggering.

When shown the Version 1, the percentage of students that picked:

  • Web-only option: 16%
  • Web + Print option: 84%

Which makes sense, until you see results from Version 2:

  • Web-only option: 68%
  • Web + Print option: 32%

i.e., an additional 52% of students picked an expensive version.

What could have changed their mind?

What Dan observed that the presence of decoy option #2 (print only) in Version 1 made option 3 (web + print) appear more enticing.

In life, we make decisions on relative terms vs. absolute terms.

In the above example, you saw 52% choose the expensive version, when there was a decoy present. For your business, imagine how much difference in revenue will it make for you even if you can nudge 5%, 10%, or 15% of customers to purchase the expensive & profitable version of your product?

Action items for you:

  • When setting a price for your product, consider the effect of relativity.
  • AB test adding a decoy version and see how it affects customer purchase.

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