Give the customer a choice

On-line only no. 7/2019
When face with choosing a mobile data plan, cable television package, or even yogurt in a supermarket, we’re often stunned by the number of options available. Although psychological research confirms that too many options often leads us to totally abandon the purchase, it must be clearly stated that the choice should belong to the customer. Even if it’s a Henry Ford style choice - that is, that the customer can have the car in any colour they like, as long as it’s black.

Customers usually make purchases by comparing the item with others. If a store only has one TV available, it’s difficult to tell if the price is reasonable. It just increases the likelihood that a customer will postpone their purchase to compare prices in another shop. Skilfully creating options for customers will make them focus their attention and choose the option that stands out against the others, but isn’t necessarily be attractive in itself.

Lure

Dan Ariely - a researcher in behavioural economics, tested how the relativity of choice affects purchasing decisions based on subscriptions to the Economist magazine. Customers had three options:

  • An online subscription for $ 59 (Option A),
  • A paper subscription for $ 125 (Option B),
  • A paper and online subscription - also $ 125 dollars (option C).

Option A was chosen by 16% of potential customers, Option B was chosen by none, and Option C was chosen by 84% of customers. As you can see, no one chose one of the options, so Ariely removed it from the pool and asked customers about their preferences again. This time, Option A was chosen by 68% of respondents, and Option C only 32%. Thus, Option B (which nobody wanted anyway) was a kind of reference point, a lure introduced into the offer only to draw customers’ attention to Option C.

An expensive reference point

Many offers - both B2B and B2C - are constructed based on the bait principle. One or several very expensive products are placed in the price list - products which usually don’t find buyers. Their job is to change the relative perception of prices of other products, to make them seem much more attractively priced.  An example of such an approach may be an expensive, luxury car sitting in a showroom otherwise full of cheap city cars, or a luxuriously-finished apartment offered by a property developer, even though they generally sell unfinished units.

VIP service

The same applies to services. Imagine that you offer a wall painting service for 6 euro per square metre. If the customer has no other options to choose from, they’ll have to compare your price with the prices offered by competing companies. That’s why you should add a different option to your offer - wall painting with additional benefits for the customer, e.g. shorter waiting time and thorough cleanup after painting. The price of such a “VIP service” may then be 12 euro per square square meter. Then, your company's offer will have an advantage in two aspects. First of all, the price of the basic service (with normal delivery time and without cleaning) will be half the price of the VIP service. Secondly, there’s a significant chance that there will be customers willing to pay a lot more for the time savings and comfort offered by the VIP service. By adding a second service to the offer, the company can increase sales of the basic service and at the same time earn more on the more expensive option.

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