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

Click Here to Watch on Youtube

Price Relativity Part #2

Click Here to Watch on Youtube

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!

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Comments

  1. Glen says

    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..

  2. says

    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.

  3. Nicolas says

    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…

  4. says

    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

  5. says

    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

  6. says

    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.

  7. says

    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.

  8. says

    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

Trackbacks

  1. […] If you think there is no strategy behind this, you?re crazy. I?ve shared numerous posts and examples about this pricing strategy in the past. You can see this example everywhere you go, if you look closely. Which one would you choose? If you want to learn more about WHY this is such an effective strategy, check out my blog post on Buying Psychology here: http://www.jameswedmore.com/buying-phsychology/ […]

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