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The Power of Option “C”

Volume 2 Issue 1 - January 4, 2012

As I write this issue of the Six Secrets Newsletter I am in the middle of preparing for a very exiting webinar coming up on Monday the 9th (which is also my birthday.)

Today's topic is actually inspired by some of what I'll be sharing on Monday. It is a powerful concept for boosting your profits by giving your customers a few options.

I recently saw someone charging $54.99 to learn the exact concept you are about to discover. Your Six Secrets Newsletter membership just saved you some money (and is likely to make you more as well.)

As with any new tactic - test first to make sure it works for your business.

Andrew Seltz, Publisher and EditorShare your thoughts on this issue. Leave a comment at the bottom of the page.

To your success,

Andrew Seltz

Publisher & Editor
Six Secrets Newsletter

 


The Power of Option "C"

by Andrew Seltz

Dr. Dan Ariely noticed something strange one day. While surfing on the Internet, he stumbled across an online promotion for the Economist. It was an offer for a subscription to their print magazine, their online magazine, or both combined. Those options made perfect sense. The strange part had to do with the prices.

Logic would say, the online only subscription is probably cheapest, followed by the print version, and then the combination of print and online. But, this was not what he saw.

Instead, the marketing team had priced the print and print-plus-web versions at EXACTLY THE SAME PRICE.

This didn't make sense, but he also suspected it wasn't an accident either. So he did what any Professor of Psychology and Behavioral Economics would do...

...he experimented on his students.

Dr. Ariely designed an experiment where he placed two product offers in front of his subjects based on what he saw in the Economist ads. The 1st version included the online only option and the web-plus-print option. The 2nd version included the 3rd print-only option (option "C") at the same price as the web-plus-print. The results...

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...there was a 262% increase in people choosing the more expensive web-plus-print option when the third 'decoy' option was included.

Decoy Pricing

The principle at work is called 'Decoy Pricing' and works on the concept of asymmetric dominance. That's the fancy Ph.D. term that essentially means we tend to compare things that are similar before making a decision. If confronted with a choice between a low-priced option, a high-priced option, and a high-priced option that is 'defective' in some way, we compare the two similar high-priced options and forget about the other one.

Human beings are hard-wired in our brains to compare things. We have a hard time making a choice when there is only one option (and similar difficulty when we have too many options.)

According to Dr. Ariely, "most people don't know what they want unless they see it in context." Decoy Pricing creates a context that encourages the customer to consider the benefits of the more expensive offer - something that would not happen as effectively if only two options were given.

Using Decoy Pricing Strategies Ethically

Creating a phantom 3rd option for your product offerings might feel a little manipulative. But, not to worry. There are ways to take advantage of this strategy without turning yourself into a sleazy used car salesman.

Years ago I met with an urban artist (think graffiti art) who was running a successful business selling his work - but having trouble selling at higher price points.

We met at a trade show and he was selling prints, t-shirts, and original art at his booth. Most of what he had available was either low cost reproductions or higher priced original art. My recommendation to him was to bring one large original painting to his next show and display it with a very high price - something in the thousands.

The purpose of the large painting was to draw attention to his booth, establish a high price point in visitor's minds, and make all of his other offerings seem like bargains by comparison.

I told him to do the same thing at his store.

I'm not sure whether he ever took my advice, but I do know of an online business that has used a version of decoy pricing to increase their earnings.

The approach of this website was similar to what I recommended to the urban artist. Instead of using a single priced offer on their website and attempting to upsell customers after they made a purchasing decision (a common practice online), this site listed three options on the sales page. There was a good, better, and best option with low, medium, and high prices.

The net result of their use of a three option offer...

...96.8% of their customers choose one of the upsell offers.

Decoy Pricing Works Offline Too

My first offline experience with the power of decoy pricing was at a marketing seminar held by Fred Gleeck. He offered a product package at the end of his presentation as a way to both pitch his products and also explain how to pitch products. He also had 3 options at 3 price points. His goal was to bring most people in to the 2nd offer - and that is precisely what happened (I purchased the middle offer myself - even after he explained what he was doing.)

I've also experienced the power of the decoy pricing method 1st hand. As a salesman, I was expected to price 3 separate options for every client. This was company policy. The veterans in the office would price the top option at the highest price possible and show it 1st. Then, the 2nd and 3rd options would seem like bargains by comparison.

If you left out the 3rd option, most people chose the cheapest solution. But, when the 3rd option was there, most chose the middle option (and a few took the top-off-the-line!)

Add Option "C" For Increased Profits

The bottom line is this, adding 3 options to your sales offer can radically increase your profits per sale. The technique is based on well established psychological principles and is not a gimmick that works today and is gone tomorrow.

Test it with your market and see if your profits go up.

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