Dan Ariely on Pricing and Perception

My thanks to colleague Kieran who reminded me of this lesson from Dan Ariely, who we filmed recently.  He uses the example of an advertisement in the Economist magazine offering three options for subscription to illustrate the power of pricing and positioning.  The Economist came out with the following offering:

  • Online version for $59 – wow.  Quite expensive but arguably the Economist is a quite good periodical and perhaps that’s a good deal.
  • Print version for $125 – more wow.  In comparison, that’s expensive indeed and in this age of digital on-demand media why buy the hard copy – which requires checking the mailbox and reading in hard copy and so on…
  • Both Print and Online versions for $125 – whoa, now both versions for the same price as the print offering.  Makes you wonder who in the world would buy the print-only version.

Dan Ariely tried to figure out the relative value by presenting these options to his graduate students.  Here are the results:

16% chose online only.  84% wanted the combo deal, and nobody wanted the print-only version.  Interesting results, but it makes you wonder what the economist was thinking in creating an offering that no one wanted.  Were the marketing people asleep?

Dan then re-printed the offering – deleting the middle option print-only – and the results were that the first $59 option became the most popular by far and the combo deal the least popular.  In consumer perception, by offering the combo deal at the same price as a less desirable option, the higher priced option became more valuable.  It was only the comparison that led people to choose the $125 option.  Think about that next time you price options in the world of selling when no one is buying.