24 Apr 2009

Predictably Irrational

In his presentation at TED, Dan Ariely, author of Predictably Irrational, pointed out the power of relative price points. People tend to have a bargain hunting propensity.  For example, The Economist magazine offered three subscription price points on their website:

  1. Internet-only subscription for $59
  2. Print-only subscription for $125
  3. Print-and-Internet subscription for $125

Option 3 is the clear bargain and was taken up by most people.   Since no one was interested in Option 2, it was eliminated from the landing page.  The result:

  • The $59 Internet Only subscription option became most popular.
  • The impact on revenues:  $11,444 dropped to $8,012 (42% decline)

Why is this important?

  1. Ariely proved that when people are presented with 3 options, 75% of the time, they will choose between the two that are most similar.  So having a throw away option, while not logical, does offer a clear point of reference to the decision maker.
  2. If you have two leading prospects, then a buyer's decision can usually be swayed by offering a third purchase option.
  3. If you give people reason to reconsider buying from you, then you make the purchase decision more complex and make your prospect an opportunity to reconsider buying from you.  In effect, you have to remove any friction from your sales funnel, so the shopper has no rhyme or reason not to complete the transaction.
  4. Immediately upon completing a transaction, people tend to be in an agreeable mood.  This is a great opportunity to ask them to do something for you like buy another item or tell their friends about you.

For more on this subject, Read Don't Make Me Think!