I was at a networking meeting the other day having a conversation with someone about the need for choice in order to make price comparisons. He said that he used to own a retail store selling learning products for children and he had noticed that when he had just one product of its type on the shelf it often did not sell as well as when he had two or three products. My new friend was theorizing that this was because this changed the decision making process from ‘Do I want one?’ to ‘Which one do I want?’.
I am a big fan of Dan Ariely’s book on behavioural economics called
Predictably Irrational . It is an easy read just because of his wonderful stories and great sense of humour! He does all sorts of experiments just to test behviour patterns, expecially when it comes to buying. There is an excellent section, for example, on the psychology of FREE for which he has done extensive tests on human behaviour.
According to Dan there is a real benefit of having choice when it comes to influencing buying. We do not really know how much we should pay for something until we have something to compare it against. If people know how to buy a product and are aware of competitors prices then they have something to compare your prices with. If you are offering something different (and hopefully you are!!) then they will not be able to make that direct comparison so easily.
I use this same principle with clients by helping them develop service level packages and the use comparative pricing to sell more of their preferred package. Another area this works well is on seminars and workshops. An early bird price compared to a much higher normal price normally sells better than if you only had one price, even if it is the same as the early bird price! It is all down to the weird and wonderful psychology of choice that Dan details in his book.
Choice even works on free too. If you offer something for free then you do not get the same response as if you provide a choice of buying something or having something for free. Obviously, if the intension is to make a sale then offering a free item may not be a clever thing to do. People will veer towards the free item. You would be better off having a choice between two items that required payment. If the objective is to get sign-ups to a free newsletter then giving a choice between free and paying, according to Dan’s research, will boost sign-up rates.
In selling services, one technique is to create service level packages. The classic approach is to have 3 levels eg Gold, Silver, Bronze. That works. It’s tried and tested and widely used. The reasons, though, may be more to do with psychology than service. So if you are having difficulty with people paying decent rates then try creating service packages and use the power of comparative choice to justify your rates. You never know, you may end up selling packages at an even higher rate than you desire!
Just a word of caution on choice. In Malcolm Gladwell’s excellent book Blink! there are also details of experiments with choice. He presented clear evidence that choice is good up to a point but when we have too much choice we tend not make a decision to buy. There was an example of someone selling jam. 6 varieties sold well. When the choice went much beyond that the demand started to drop off a cliff.
It seems that having a choice is good for sales. Having too much choice is bad. How much is too much is unclear but it seems somewhere between 2 and 6 should be fine.
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on May 8th, 2010 at 11:47 am
I think this psychology is right, even if slightly depressing if one is trying to live a less material life!
I worked for years as a human resources manager and found this to be especially true in recruitment. Often I would pre-interview a long-list of people and would find one I knew would be perfect for the job. I also knew that if I put forward only this one person in a shortlist, there would be serious delays and we would lose the candidate because of demands to see more people “for comparison”.
So I learned to routinely put forward two more for second interview as well, who I knew did not measure up. This always made me feel bad because I was wasting people’s time, especially the poor candidates whose hopes were high. But it was the only tactic that ever worked.