Wednesday, April 24, 2013

The Salesman’s Guide To Manipulating Your Friends

A common convention used when pricing a product is to offer 3 different prices - a premium option, a normal option, and a budget option. Even if you would prefer to offer just one product at one price, the three tier option is usually better.


Why? Because when it comes to making decisions based on prices, people are easily manipulated. Here is a good example that summarizes an experiment from the book Priceless:
“People were offered 2 kinds of beer: a premium beer for $2.50 and a bargain beer for $1.80. Around 80% chose the more expensive beer.
“Now a third beer was introduced, a super bargain beer for $1.60 in addition to the previous two. Now 80% bought the $1.80 beer and the rest the $2.50 beer. Nobody bought the cheapest option.
“Third time around, they removed the $1.60 beer and replaced it with a super premium $3.40 beer. Most people chose the $2.50 beer, a small number the $1.80 beer and around 10% opted for the most expensive $3.40 beer. Some people will always buy the most expensive option, no matter the price.”
As the experiment shows, people often have a preference for the middle option, irrespective of quality or price. Although we tend to think of ourselves as making decisions by comparing the cost of a product to its quality (or our willingness to pay), we don’t always do so in practice.

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