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Price Optimization – How to increase your sales by 42.8% simply be presenting your products differently
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Today I’m going to show you exactly how you could increase your sales by 42.8% without increasing traffic and without changing prices of existing products or services.

In fact, this is the same process we have used on our own sites as well as various client sites to significantly increase sales.

And I should be clear:

This is not by doing price optimization on your current products or services, but simply by exploiting an extremely powerful persuasion principle and the laziness of our (and your customer’s) brain.

So if you like easily applicable concepts (like me), you’ll love the concrete steps and application examples hereafter.

Let’s dive in.

Making a decision is sometimes damn difficult! Or maybe not?

It all depends on how you are offered the different options.

Let me explain :

We all think that we control our decisions. They are thoughtful, rational and controlled.

If I told you:


Most of us think of being in the driver’s seat and thus controlling our decisions, but in reality it is already the “Google Car” (or Tesla, whatever you prefer) era…
Our brain decides without needing the driver.
Because in decisive moments, we control only a tiny part of our decisions.

 Will you believe me?

Let me illustrate this with a story that opened my eyes and glued me to my seat, mouth wide open.

Some years ago I met a friend of mine, Roberto, who runs a restaurant in Munich.

Increase retaurant salesAn Italian restaurant with this little extras: Neat decor, Italian trattoria ambience, the bottles of Barolo, Brunello (and…, a secret tip for winelovers, some Fattorias le Pupille by Elisabetta Geppetti, an excellent price quality ratio) which are nicely arranged among others in a large old oak wood shelf behind the bar.

When you enter through the doorway, which reminds me of one of my favorite Trattorias in Rome, Da Lucia, you are greeted in Italian with a smile. The waiters all wear a flawless white shirt with a black apron.

This is the type of restaurant where you feel good, the food is delicious, the atmosphere reflects the joy of living. And the value for money is excellent. It is also, according to Roberto, one of the main reasons why he has a lot of clients. It’s almost impossible to get a seat without booking in advance.

Roberto just had a little problem!

Because the surface of his restaurant was limited, he regularly had to refuse clients.

As a good businessman (and this is not incompatible with being very nice) he nevertheless looked for ways to increase his sales.

However, he didn’t want to change the prices on the menu and it was difficult to do a second service the evening (we Germans go to bed too early).

So he focused on his menu and searching the web, he came across the work of Gregg Rapp, an American restaurant consultant that specialized in menu profitability / price optimization and Aaron Allen. He has implemented many of these concepts and recommendations that have produced unexpected results.

But what he did first really jostled my beliefs about how we make decisions:

Decoy_offer_restaurantHe simply positioned at the top of each category of the menu (entries, fish, meats, desserts, wines (no Pizza in his place :)) the dish or the most expensive bottle of the category.

Then he continued with the dishes and wines of a medium / superior price and so on until the less expensive dishes and wines towards the end.

For some categories, he created a really more expensive dish than the rest, an “ugly brother” so to speak. Also for the wine he put a Barbaresco at € 297 the bottle at the top of the page.

On the other hand, he did not touch the other dishes and wines, nor their price (except their positioning on the menu). It’s like what is illustrated on the menu here.

What do you think happened?

In the end, all his customers have always found the same dishes and wines at the same prices on the menu. Just the order changed and sometimes a comparatively expensive offer was at the top of the menu category.

But…

He realized a growth of his sales by a 2 digit figure (for reasons of confidentiality I unfortunately cannot  reveal the exact figure, but, I can tell you, I was stunned …) by simply introducing a couple of additional lines on his menu card and changing the order of presentation!

And he achieved all this without a higher occupancy ratio of the tables in the restaurant, without serving more covers and without changing prices.

It’s because his clients have simply chosen on average a more expensive dish or wine!
In a certain way, Roberto did price optimization.

This type of offer is called a decoy offer (or an ugly brother). And the associated cognitive bias is called asymmetric dominance. It may be considered as a sort of pricing optimization.
It’s not about something you want to sell, it’s just about an offer that puts the other product or service you offer in perspective. To create a relativity between prices.

It’s Dan Ariely, professor and researcher in behavioral economics, who has done a lot of research on the irrationality in our decisions, including decoy offers.

He has proven our tendency to use comparisons (or relativity) when it comes to choosing an offer.

His research and tests have shown that the introduction of a lure offer that we will call “A-“, and that looks very much like another offer “A” that we want to sell (but which is slightly different, often a little less desirable because too expensive or with less attributes -> “A-“), pushes us to choose the offer “A” and not a third offer “B” next, even if it is much less expensive than “A”.


Other examples of optimizing revenue with decoy offers

The case of Williams-Sonoma (originally published in the Journal of Marketing Research) has become a classic in Marketing and Persuasion books. Williams-Sonoma, a small appliance manufacturer, once introduced a $ 275 bread maker in its range and accordingly in its catalog.

Big problem, despite the fact that the other products of Williams were selling well, the sales of this bread machine remained well below expectations.

Convertize-Williams-Sonoma-decoy-offerWith the help of a marketing consultant, the Branch had an idea: Williams-Sonoma introduced in its range a second bread machine, slightly larger, but with a price much higher at $ 429.

In its catalog Williams has simply positioned this new product directly next to the first $ 275 bread machine.

As a result, sales of the $ 275 machine nearly doubled.

A decoy offer of this type can work wonders to convince your potential buyer.

If you want to bring up the price of a product you want to sell comparatively cheap, do not change the price of this product, but position a similar product, but more expensive, next.

And here another example, but applied to a pricing page:

Here, it is Crazy Egg (a heatmapping, scrollmapping, … solution) which puts it with success in practice on an older Pricing table.

Priming_CrazyEgg_Pricing

The most expensive offer (“Pro”) is positioned first here. It’s the less attractive “A-” offer  compared to the offer “A” that Crazy Egg wants to sell (“Plus”).
Crazy Egg wants to prevent the visitor from choosing the Standard or Basic offer (yet there were other competitors, offering solutions at these price levels).

Also on their latest pricing table, they continue using a decoy offer:

Decoy_Crazy_Egg_Pricing_2018

And look, also Amazon uses decoy offers (I came across this page by typing “caméra digitale SLR” in the search on the french  Amazon site some time ago):

Amazon_decoy_offer_ugly_brother

You realize, as if by chance :):

  • The Nikon D3200 with 18-55 mm lens at 388.80 € is the “# 1 Bestseller”
  • The Nikon D3200 with 18-55mm lens just next to it costs 439.00 € (-> yet, at first sight, it seems to be exactly the same camera). The difference is very subtle, it’s on the quality of the lens.
  • And the third offer costs only 210.44 €, but obviously, almost nobody buys it (no reviews).


Of course, it is the offer at 388.80 that Amazon wants to sell, and by adding an offer that seems to be the same, but which costs 50 € more, they create a point of comparison for our lazy brains that makes the comparison with the offer at 388.80 € so easy that we do not even think to buy the Lumix at 210.44 € …

Still, its price is almost 2 times cheaper.

The decoy offer that has the power to increase sales by 42.8%

This is actually once more based on research done by Dan Ariely. Also a very subtle price optimization.

One day, Ariely stumbled upon this online ad by The Economist:

decoy_offer_ugly_brother

A ‘Print Subscription’ for the same price than the ‘Print & Web Subscription’ at $125???

Why would you advertise a more comprehensive offering at the same price as a definitely inferior offering ?

Ariely was intrigued.

So he set up a study with a representative sample of students and asked them what they would choose. The outcome was

  • 16% choose the online subscription
  • 0% the print subscription (in a certain way reassuring…, all students were able to read :))
  • 84% the print & web subscription

Now, to another group of students he presented the following offering:

decoy_offer_ugly_brother_the_economist

He just deleted the option that nobody wanted in the previous group. Why keep it?

Guess what happened:

  • 68% choose the online subscription, and
  • 32% the print & web subscription

In other words, adding an option that nobody wanted, increased sales by 42,8%!

And the list goes on:

 Decoy_offer_starbucks

Our brain is lazy

Research on the ugly brother has demonstrated another powerful effect:

decision-paralysisWhen confronted with a decision, our brain is lazy!

If the options presented to us are too different, this often results in decision paralysis and we end up not deciding at all.

For example, take a smart aging company (that can help you to reduce your speed of cellular aging) offering 2 programs:

  • a one-to-one coaching program with an aging expert for let’s say $97, and
  • a comprehensive program / product offering including a cellular aging test, 12 months supply of specific anti-aging-supplements and access to an online content library incl. quality content to better handle aging related factors: right diet, stress management, specific fitness program, etc. for let’s say $497

These 2 options are so different that our brain has difficulties to compare them, even if the objective “Better Aging” is addressed by both:

  • Do I get more out of a personalized coaching than from supplements or vice versa?
  • Do I need a cellular aging test or is it better not to know my cellular age, but just improve it?
  • ….

If however we are presented easily comparable options, for example

  • a cellular aging test for $97
  • a comprehensive product offering including 12 months supply of specific anti-aging-supplements and a cellular aging test for let’s say $297 and
  • a comprehensive product offering including 12 months supply of specific anti-aging-supplements and two cellular aging tests (one before and one to be used 12 months later) for let’s say $347.

In the latter example, the cognitive friction exerted on our brain is much less as the options are much easier to compare and therefor decision paralysis much more unlikely.

So what do we learn with all this?

  • We mostly decide and/or shop by comparison
  • You can increase your avg. shopping basket without any change in pricing
  • You can convert indecision into decision more often
 => get higher conversion rates

Conclusion

  • When presenting your products or services, always test the introduction a decoy offer next to the offer you want to sell first.
  • Make sure that your decoy offer is slightly less attractive than the offer you want to sell (more expensive, or at the same price but with less attractive features).
  • On the web, this tactic works best if you offer between 2 and 4 products next to each other on the page.
  • To propel sales of a product that is difficult to compare with others in your product offering (difficult to compare a bread machine with a mixer …), introduce a second product easy to compare but less attractive (more expensive, …)
  • Test to put an order in the products / services you offer: The most expensive top or left, the cheapest at the bottom or right.

So…,  How do you intend to apply decoy offers in your business (online or offline)? Leave a comment below.

Jochen

by Jochen

Jochen is Associate Director at Convertize. After an MBA at INSEAD, he began his career at Airbus. Then, he moved on into Management Consulting, focusing on purchasing and negotiation strategy as well as cost optimisation projects for bluechip and midsize companies in France and Germany. His experiences led him to specialise in persuasion psychology, behavioural economics and conversion rate optimisation.