You may have heard of TED and if you have you probably find yourself in one of two pools. Either, 1) you have no interest in hearing people talk about their egos through their “research”, or 2) you enjoy the talks and find them, for the most part, interesting. I’ve heard both sides and been on both sides. Sometimes, however, there are TED talks that are downright fascinating. I’d like to share one of those today in which a behavioral economist teaches a very, very interesting lesson about pricing. (Note: the video is embedded above but skip to minute 12:30 if you don’t have time to watch the whole thing.)
Here’s a Quick Recap
A subscription offerered by the Economist, from their website, had 3 options:
As you can see, the second option just doesn’t make sense. So, this man, Dan Ariely, tested it. The result? (i’ve added the revenues as well if 100 total people purchased).
So, the “print subscription is useless…right? Ariely was curious and tested it without the middle option.
The results were surprising.
I love the way Ariely explains this, “What was happening was the option that was useless, in the middle, was useless in the sense that nobody wanted it. But it wasn’t useless in the sense that it helped people figure out what they wanted. In fact, relative to the option in the middle, which was get only the print for 125, the print and web for 125 looked like a fantastic deal. And as a consequence, people chose it.”
What crossover or similarities do you see? The first ones that jumps out at me are half-day lift ticket prices. You charge $50 for a day of skiing, or $40 for a half day. What? Why isn’t it half? No one will buy it if costs 80% of the original ticket price. Well, if they don’t buy that, what will they buy? A full day ticket of course. While half day passes may not sell like crazy, they do help people figure out what they want.
More than anything, this helps us see the different purposes having a list of prices and options plays. While too many choices can limit action, the right types of choices can encourage the action we seek.
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