On February 2, 2013 the CBC aired an episode of Terry O’Reilly’s program, Under the Influence. The theme of the program was about choice and about how a customer makes a decision when a marketer gets a product in front of you, the buyer.
Do I buy or not?
Given too many choices of products or services a customer will simply NOT make a decision and walk away.
We are, in this modern world, bombarded by radio, TV, junk mail, and spam to make a decision and buy something. Instinctively we tune out rather than make a bad decision. This is because, according to Terry O'Reilly, we, as humans, have an innate ability to make a fixed number of great decisions per day. After that decision fatigue sets in.
There are deep parallels with how the same process of making a choice works in the pricing world as well. Do I pay this price or that?
In my observation with clients and in my own research, too many price points with the product or service that a company offers leads to decision overload. When one of our clients confronted his customer with 14 different price points on similar products, sales stagnated. The customer walked rather than make a decision.
To solve the problem, we reduced the list to 3 prices and sales improved.
Why 3 prices?
- A single price is a take it or leave it ultimatum. No one is comfortable with that and it is simple to say no.
- Two choices are still a bit black and white.
- Three choices appeals to our very human need to be in control, to make an informed decision that can be explained simply thereafter to a spouse or business partner.
Moreover, we could now create a price list for the client that went from good to better to best.
But in order to improve profits we deliberately made the middle product most attractive.
The middle product had a combination of useful but not too elaborate features. The middle offering was better that the plain Jane economy model. The middle product was not too high in price but certainly not the cheapest. Since most people equate quality with higher prices, we strategically placed the middle product to be an easy consumer choice. By the way, it was also the most heavily inventoried product.
This is the path to improve profits. Your company product and service must stand out but when the customer is considering the pricing decision, there must be a choice, just not too much choice.
To Build Your Business bring your pricing structure into 3 unique products lines with defined benefits for the clients to choose from and watch your sales and profits grow.