Pricing and Framing: When Are We Likely to Pay More for Products?
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I think by this time almost every marketing strategy is tried as to how goods are priced: We are told that today is the last day of the sale; we are given the price at which the good was previously sold (this was $20 and now it’s $14.95); or Gap tells us that the 30% off is for 4 days only (right). I want to write about one strategy firms use to increase the sale of a product. This strategy involves framing: the product is presented in the context of other, related products. We’ll see that “relativity” is not a concept reserved for physics.
A classic example is as follows: Imagine that you are shopping for a bread maker at Williams-Sonoma. You have two options. A standard quality break maker is for sale for $80; and a higher quality bread maker is sold at $120. You compare and contrast the two machines. You tell yourself you are not an expert maker, and you go with the $80 one. Sure, some people would choose the more expensive one but not a majority of the people. At least not initially.
So what does the company do, to make the more expensive version more attractive? Other than advertising it or playing with its price?
A subtle way that’s shown to work is this: Williams-Sonoma, on top of the standard and the expensive versions, creates a much more expensive version (call it the “platinum” bread maker) and sells it for, say, $475.
Now when you go to the shop, you have 3 options. You can spend $80, or $120 or $475. Rationally speaking, adding an irrelevant option should not change your decision between the $80 and the $120 ones. The pros and cons did not change; quality of the bread makers remained the same, and you are making the same salary. You know that you are never going to spend $475 on a break maker. You don’t have the budget for it. (Plus, to justify that big an expenditure, you’d have to eat bread every day, and that simply would be too heavy in carbs).
But the thing is, now you do would feel more comfortable buying the $120 one. After all, you are not buying the most expensive alternative. You have found the middle ground, and you are probably happier, compared to someone who buys the cheaper version with only two options.
The more expensive product, the platinum bread maker in this example, is called a “premium loss leader.” A leader, because it’s the highest quality/highest priced product. A loss leader, because it’s raison d’etre is to lead the sale of the medium range product. In other words, the company never expected to make a profit from the sale of the $475 machine in the first place.
Irrelevant third options do change our decision-making processes, because they complete the frame that we think in. There is a wonderful example, reported by Dan Ariely in his book Predictably Irrational. It’s about dating, and choosing men, but the main idea is analogous to choosing bread-makers. No pun intended.
Tags: bread maker, bread makers, Williams-Sonoma
