Over and over again one idea has proven invaluable to marketers who struggle with pricing.

Good. Better. Best.

One of the thought leaders on this topic is William Poundstone who wrote Priceless: The Myth of Fair Value. Poundstone, an MIT professor, created a framework that explains the hidden psychology of value. Priceless is a book worth reading if you often deal with negotiations and pricing challenges.

There is a study he conducted where he gave consumers a range of choices of beer. If given two opportunities, 80% of the time, they chose the more expensive option. When given three choices, (good, better and best), 85% of the time they decided on the middle price.

Simple Makes Choosing Easier

It is so apparent, but it is easier to make a decision when faced with three choices versus 5, or 9 or 25. The paradox of choice is real. Still, companies and brand continue to make things complicated and challenging for the customers they want to win over.  Because we want both the best and great value, an offer of three choices typically lands 85% of customers in the middle.

Online or Off

B2B products will frequently use this rule of three for software as a service. You get three pricing plans to choose from:

  • Free
  • $20/month
  • $75/month

In this example, $75 anchors the value. At that price, you expect to get all the bells and whistles. Everything they have to offer. In contrast, $20 seems like a bargain because you get about 80% of the benefit for much less. So, most businesses will opt for the $20/month plan. It helps to have some distance between levels of at least 20% to help make this decision easy.

Next time you have a choice, notice where you land and what drove you to the middle tier. The psychology of value and pricing is an integral part of how to position your product or service offering. Don’t allow customers to checkout by making their decision so painful, that they abandon their interest.

Pay attention.

 

Struggling with a pricing challenge? Need help with simplifying your product offering? Maybe I can help. You have three choices to connect with me.

  1. You can set up a time to chat using my calendar.
  2. Email me at jeffslater@themarketingsage.com 
  3. Call me. 919 720 0995.  The conversation is free and we can explore if working together makes sense.

Photo by Burst on Unsplash