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…
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?
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!)
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 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.”
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!