I watched this video on TED that talks about whether we are really in control of all the decisions we make in our life. I watched it purely out of interest but in it I found a really interesting example the speaker gave that I feel can be applied to many businesses in real life because it is regarding a very important component of any business – pricing decisions.
Pricing is a really tough component to tackle. Price it low and consumers might equate to low quality. Price it high and consumers might choose a cheaper alternative. Within a business’ different product lines, pricing is also an issue. Will one product cannibalize another product because of the wrong price? All this and more can keep many entrepreneurs up late at night.
Well there is an interesting portion of this video from 12.35min to 14.10min (I’m awesome right? Now you don’t have to watch the whole video).
For those of you who don’t want to watch it, this is a summary of the example:
The Economist offered 3 subscription plans for its magazines:
Option 1: Online Subscription $59
Option 2: Print Subscription $$125
Option 3: Online AND Print Subscription $125
As it turns out, through an experiment with some MIT students conducted by the speaker, 16% chose Option 1, and 84% chose Option 3 and none chose Option 2 (thankfully). You see when given these options, Option 3 sounds like a really value-for-money, bang-for-buck option!
The experiment was repeated again, this time with only the following two options:
Option 1: Online Subscription $59
Option 3: Online AND Print Subscription $125
I’m not sure if this will surprise you (it didn’t surprise me) but the results were quite the opposite now! 68% chose Option 1 (as opposed to 16% in the first experiment) and only 32% chose Option 3 (as opposed to 84% in the first experiment).
The key takeaway from the speaker was that although Option 2 seemed like a useless option to even have, it was useful in the sense that it helped customers figure out what they wanted!
So for all of you out there currently running your own business, perhaps you can try this little ‘trick’ out and I hope it helps to increase your sales!
(Any comments or thoughts? Do leave a comment!)
StartupCHEW 