Buying Psychology & Price Relativity – A Groupon Lesson
Nothing compelled me more this morning that Groupon’s Daily Deal from Omaha Steaks! Omaha Steaks Rocks, and they had a killer deal for a Steak-Package that would be impossible for anyone to pass up! This short article is a fascinating study in Human Psychology, What We Value, What We Buy and WHY we Buy…the numbers are all right there in plain sight if you are ready to look…
The Scenario:
Omaha Steaks' Daily Deal
Groupon’s Daily Deal was an Omaha Steak Gift Pack for just $45
Upon choosing “BUY!” to take Groupon on their deal, they present you with a Pop-Up Window to offer you two additional Omaha Choices (see image).
Choice One: Joyful Gift Pack ($108 value) PRICE: $45
Choice Two: Tastes of the Season Gift Pack ($202 Value) PRICE: $75
Choice Three: Holidays at Home Gift Pack ($212 Value) PRICE $90
Which one will you BUY?
The RESULT:
As you can see from attached image, the “estimated” numbers of who bought what were as followed…
Choice One: Joyful Gift Pack ($108 value) PRICE: $45 (Over 840 Bought!)
Choice Two: Tastes of the Season Gift Pack ($202 Value) PRICE: $75 (Over 1,000 Bought!)
Choice Three: Holidays at Home Gift Pack ($212 Value) PRICE $90 (Over 200 Bought!)
The Analysis
It’s very fascinating to have actual “Real-Time” results from REAL Products and REAL Customers, so when I saw this I went nuts! But what does it all mean? Let’s take a closer look at some of the items at play here…
The Upsell:
The Principle of “Commitment & Consistency” tells us that when us humanoids agree to something through our words or through our actions, we do their best to align ourselves with those actions and remain consistent with them. In other words, by clicking the “BUY!” button on Groupon to get the $5 package, I have committed to buy! To back out of that commitment would be inconsistent with my actions. Groupon & Omaha (and smart marketers!) know this, so we were immediately presented with an upsell-I mean “a choice.”
I could get the lower-end package for $45, or I could upgrade. Once someone commits to investing with you at a lower price, it is far easier to get them to spend more with you. Hence the Middle Package (Choice #2) has MORE sales than the cheap $45 Package (Choice #1). But riddle me this Batman: It’s obvious that “some people” would take the Choice #2 & Choice #3 upsell, but WHY does Choice #2 win with the most purchases? WHY?!
To answer that, we have to dive into a little bit of Behavioral Economics and something called “Price Relativity.”
Price Relativity:
This whole concept stems from the fact that we as “humanoids” don’t really know the true value of something. …we don’t until we compare it to something else (relativity!). Let me ask you a question:
Is $1,000 a lot of money?
It is for a pack of M&M’s (the first thing that popped into my head!)
It’s not for a brand new Ocean-Front Home in Southern California.
So, let’s go deeper with this…if you are shopping for cars, let’s say you find a make & model you really like. The price is $20,000. That number is arbitrary until you start comparing it to other cars. ex: “This other car is nice too, but it doesn’t have four wheel drive or heated seats. And it’s also $20,000. I’m going with Car #1 Bob!”
Ok, so once we understand the concept of Price Relativity, we can really look at why Omaha’s Choice #2 is the clear winner here! The customer did not look at the price at all, they looked at the VALUE they were getting and the VALUE they were saving! Omaha created (probably out of thin air!) what the “value” was for each of their offers, and clearly showed the customer how much they were saving
I Get the Most with Choice #2!
Choice #2 wins with the highest in savings with $127 (That’s 63% off-yes 5% more than the other two options) Hmmm…so the one with the BIGGEST savings wins, huh? What a coincidence! People LOVE to feel like the got a great deal, and Choice #2 was presented as the best deal! Here’s the cool part…
1,000 people upgraded from $45 to $75. That’s an additional $30,000 in sales!! <—-And BOOM goes the dynamite!
What About Lonely Choice #3?
Poor little guy. Choice #3 is really expensive! $90! That’s quick a jump from $45 (double!) If you have paid attention this far, you know that Choice #3 is the big loser, because it failed to offer as much “value savings” as Choice #2. So…shouldn’t Omaha & Groupon just remove this third choice so they can focus more on Choice #2? Answer: Nooooooo!! Omaha wants your decision to be easy, not complicated!
Choice #3 plays a very specific role! You see, with three options at our disposal, Choice #3 serves the exact purpose of helping customers see that the middle choice (Choice #2) is an absolute NO-BRAINER!
A high-end $90 price tag helps to show that $45 and $75 is actually a REALLY good deal. “Wow! Omaha sells $90 packages, if I get one at $45 or $75 I am getting a steal!”
Sure people will buy the $90 option (200 people did!), but the savings is intentionally not as much as our fearless Choice #2 Winner! But without Choice #3 here to “take one for the team,” customers would have more difficulty seeing the value in Choice #2, and may just stick with Option #1 (say goodbye to that $30,000!)
Want to Go Deeper Down the Rabbit Hole
If I am the only geek in the room that gets excited about this stuff, then thank you for joining me for a tour inside how my brain works. If you want to take a step deeper into how this stuff works, I made some videos on Price Relativity and how you can use it in your business.
Price Relativity Part #1
Price Relativity Part #2
Thanks again for reading through this! I encourage you to start seeing these patterns in your daily life and then begin applying them to your business as quickly as possible! Take care!
Related posts:
Hey James – this is a great article. I saw the Groupon this morning and thought it was a heck of a deal! Haven’t pulled the trigger yet, but I would definitely focus on the $75.
Not only is the price different, but when you look at the variety of food they included, it’s a longer list, and a tasty one at that.
I also love how Groupon shows how many people did buy each particular package. That hits on the Social Proof pyschology of persuasion Cialdini speaks about in Influence.
Bob
Hey James,
Your mind works in mysterious ways
Amazing insight in this post.
Cheers,
Hani
James – the mind is a mysterious creature! Your article captured human nature in a way we can all relate to. Obviously, groupon and omaha steak get it. Thanks for sharing.
You are not the only geek in the room
People better watch out once I start getting massive amounts of people on my webinars AND implementing your price relativity strategies-I am literally going to make the world a better place because a) there will be so many women walking around with tighter, sexier bodies and therefore b) everyone who interacts with them will benefit from their happiness.
Global shift, James……and you’re going to be part of it because you keep teaching all this great stuff, yes! xo
Oh Liz, I was beginning to think my plans for you were loftier than you had envisioned for yourself. Thank you for proving me wrong.
Teresa! Thank YOU for commenting
Hani Mantani! What’s up brotha?! You ready for 2012?! Can’t wait to see what you have in store for us!
Hi James:
Awesome content in these two videos. I buy into the idea of Price Relativity as it makes great sense from a psychological point of view.
Where can I get the comparison graphics to create my own offer – check marks, table etc?
Hey Carl, check out http://www.iconarchive.com for some great free graphics!
Thanks James – the content here is awesome and as always top-notch!
James, love this study you did. I’m planning to relaunch my two online photo courses this way but having trouble coming up with the platinum/bonus features. Should I hold some content back in the “silver” package and only include in the “platinum” or come up with some extra item to add to the course as it exists, like maybe a FB group? Thanks
Hi James,
Great article man!
I’t so obvious. People mostly tend to choose the ‘somewhere-in-between” choice when presented 3 options, so enforcing this by making this option the most profitable by savings is really fantastic.
Great insights!
Hey James
I purchased your system thru Lewis Howes and Sean Marlarkey and I have to say its one of the best decisions, ive made. Thanks for another piece of wisdom that I will use in my business. Keep them coming !
VERY good article and videos.
As a branding specialist, I–like you–always seek for better, more productive, more effective ways to promote, sell etc.
I first want to complement you: You are providing easy-to-digest information in a useful way. Your enthusiasm also comes through which is nice and not coming across “pitchy” which so may online folks do.
Your insight and analysis are intelligent and your personal case study helps groove the whole point home.
I am impressed with what I see you do and look forward to more.
BTW, you reference Google Website Optimizer (for split tests). Is that intuitive to set up OR is there some easy way to get oriented on implementing it?
Again, very impressed with your simplicity and down-to-Earth approach. Makes your info VERY useable (and I am comparing you to some of the Big Wigs whose info doesn’t achieve what you have).
I really like how psychology and marketing mix together to produce sales.
I think this concept also applies to affiliate marketing by offering :
1. Different price points on a category/type of product from one store or
2. Having a price/service comparison on one product from many different stores
Any thoughts anyone?
Fantastic post, James! I’ve been doing something similar in my roofing business for years. My company services condo HOAs in Southern CA and I present big job proposals at their board meetings. I always present three price options at the very beginning…before I even go through my sideshow and show them what they get.
I give them the price of a new roof, which I’m not proposing, then the price I really want them to choose, and then a price that doesn’t include much at all. Of course, option two is best and has the greatest value. For most condo HOAs, they haven’t budgeted for a new roof, so the price of one is a real shocker, but then I tell them I have good news and give them option two, which saves them money and extends the life of their existing roofs by several years.
As Ace Ventura said, “It’s all psychological.” and as long it’s meant to guide people to the best value, then it a good thing. Presenting three price options satisfies the natural ‘humanoid’ urge to shop…and it works great!
This was a long comment, but I hope it is a useful add-on to what you wrote. Thanks for the great content always!
Hi James
Fantastic article and videos James. Thank you for even more great content! And I’m right with you and Liz on the geek status (I am a scientist by training after all!). I am thinking about how to tweak this theory and apply it to a physical product range (namely wearable art scarves), the end goal being to attach status and desirability to the higher priced items but attract more people (who may balk at the high ticket items) with a lower priced option.
A great start to my sunday!
Sara
James,
I did this with a client here and their sales tripled in a matter of weeks. It’s amazing how this sort off thing it sitting right under their / our noses and we often don’t see it.
No, you’re not the only geek that notices this stuff
Mc Donalds is one of the best examples on this (not that I eat their food, but their marketing proves this) — why is it that a great majority purchase the MEDIUM…(they don’t want the meal that will leave them hungry, and they don’t want the meal that will leave them feeling like they have over eaten, so they go with the SAFE one — aaaahhh SATISFACTION).
Carl
Good stuff. In this competitive environment, you need to be smarter than your competition. This will help and I will tell my clients.
David! Thank you very much for the super-kind words!! To answer your question: GWO is pretty easy (and free!) Just “google it” and it shows you exactly how to get started.
AND..if you use WordPress, there is a GWO Plugin (also free) that makes it SUPER EASY!!
Talk soon
James
Good article James. I’m surprised you had time to write it. Everywhere I look you seem to be doing something.
You are making me feel lazy..
Great video! My three hypnosis programs just happened to be Platinum, Gold and Silver at $97, $67 and $47! You have opened my eyes as to how I can more properly present these offers to clients. Thanks again.
Hi James,
Thanks for sharing this irrational buying behavior analysis of humanoids… Well, I’m the perfect subject, when I’m committed to buying; most of the time I select the platinum version instead of my initial cheaper selection…
I’m working for a big company selling software that ranges from 20k$ to sometimes 1M$ and the price relativity is a big problem for the buyers because they have nothing to compare to, because the solutions are so specific that it is hard to compare with the competition.
So the trick I used is the same approach to create a sense of comparison. I usually offer 3 options to the prospect:
Offer 1: Minimum proposal, not covering all their needs, very small discount
Offer 2: Software proposal based on they needs + little extra, OK discount
Offer 3: Software proposal based on they needs + a lot extra, huge discount, but out of their initial budget.
One big difference with online businesses and the big corporate ones, is that the buyer is actually multiple people with all their different irrational needs (the boss, the manager, the technical guy, the procurement, the owner, …)
Having multiple options helps to not close the doors from an important stakeholder in the buying chains and helps also to drive discussions about comparison within our product options and not the competition…
Hani Mantani! I love that…I should trademark it
Hi James,
You’re a genius and ‘way beyond where I am right now so this may seem very elementary: where can I get training on how to create the price list page that you did showing the check marks and paypal buttons?
I’m going to go back in to one of my websites right now and re-create it with three different options; thank you!!
Donna
Great points in the video. Just goes to show that once again you’ve got to split test, and what you presume will work might not be the case. Context is everything.
You’re Video Training Academy was excellent James, so the quality of this post is no surprise.
Many thanks again!
AL
Hi James,
Thank you for reminding again about the 6 Social Triggers that Robert Cialdini talks about. Especially the one about commitment and consistency. The 3 options strategy and the focus on value are an eye opener. I mean, we all know this to be true, but how many times do we actually put this into practice.
There are a few projects that I’m going to implement your advice. Thank you.
Another great resource for making sales and pitching is the book Pitch Anything by Oren Klaff. Not sure if you had a look at his work. It’s absolutely brilliant.
Thanks for the great tips…will definitely use them;-)
I am a newbie but this is the most useful video I have seen on the topic of pricing. I am a finishing a book and have to figure out how to use this strategy.
Hey James,
Awesome content here. A quick question for you, would you always offer an upsell on the Silver tier in addition to giving the three initial choices? Would this be the same for higher price point products? Thanks a bunch!
All the best,
Jason