Pricing is not just about having the right price point, but to a large extent also about having the right price perception. Behavioral pricing is an area that provides you with several different tactics on how to communicate price and adjust your offer so that the price looks right.
#1 Offer alternatives and the ‘anchor’ effect
Let us show to you how important it is to offer alternatives. In an experiment, we offered a group of people 2 different bank accounts. One for free and one for a dollar. 66% went for the free offer. In a second group, we offered an additional third account for €2. Only 12% went for the free offer and the majority took the €1 account. Simply by introducing a third offer acting as a price anchor, we were able to significantly boost revenues.
This works in all kinds of industries. Consumers have the tendency to avoid extremes. Think about the wine menu in a restaurant. You don’t want to be the guy who buys the cheapest bottle of wine and looks like a loser. Nor do you want to waste money on the most expensive bottle on the menu, where you can’t even taste the difference to the next-best wine. So the majority of people would go for somewhere in the middle.
#2 Change the relative value with suboptimal alternatives
A similar approach to adding a premium alternative is to add a suboptimal alternative. In an experiment with a leading publishing house, one group was shown two alternatives, namely Online and Print+Online. The majority went for Online only, since the price was less than half of the Print+Online offer. Another group was shown an additional Print only offer at the same price as the Print+Online. Obviously, the new product was not very attractive since it had a lower value, yet the same price as the Print+Online. But even more interesting is the fact that it drove consumers from the low price offer to the premium offer. Introducing an inferior alternative changes the relative value of the products and can thereby alter a customer’s buying decision.
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