Decoy Pricing & Anchoring
The next is pricing. So this goes into the realm of the limited choices and the paradox of choice a little bit. So this is kind of a little bit of a different take on it, but still highly, highly valuable. Some of the things that I've pulled for this section came from an article, feel free to look it up, is Pricing Experiments You Might Not Know, But Can Learn From. It's a fantastic article that shares some of the studies that lead to some of these results. I'm not sharing all of the examples from that article here today, because I wasn't sure if they all apply, but I'm sharing the ones I think do apply to this audience. So first off is decoy pricing. Chris are you familiar with this one? Or you just like the title?
I'm guessing what the title means. I don't know that I know the concept personally.
Okay. So decoy pricing basically boils down to this: If you have a $10 option and a $20 option, and they're fairly different, let's say, most of the people will choose the $10 option if ...
it serves what they need. So you might get like a 58% purchase rate on the $10 option. Then what one experiment, I believe this was with The Economist that they ran this experiment, so they had the $10 option, and then they added a middle option, which was not $15, it was also $20. And then the third option was still $20. So the middle option just simply provided a little bit more value. I think it was like with The Economist you could get the digital version, and then with the $20 option it was you can get the digital and print version. So whatever little changes they made. But what was amazing was people chose not option 1 and not option 2, but option 3. So they doubled their revenue by adding a decoy in between the two. Now this is highly interesting. Why is that? And what they theorize the reasoning to be is when you have the two options and both serve the good enough purpose, they choose the cheaper option. But with the decoy, what happens is they are no longer comparing and contrasting $10 versus $20, they are comparing and contrasting $20 versus $20. And what provides more value is what they will go for. So if in your business you can see an opportunity to provide some kind of decoy option, then I think it's a great addition to your strategy. And with the wonderful world of the digital space, I think that there are many ways to do this in a good and ethical way, because you could add more value that really doesn't cost you anything else, but it gives your audience members, your clients, your customers, even more value at a solid price. So that's one interesting one, the decoy pricing. The other one is the anchor and contrast. And the anchor and contrast basically is, I use these in conversations quite a bit. And this is also a little bit of a negotiations technique, but you, at some point in your conversation near the beginning, throw out a number of some sort. And the number needs to be probably let's say double, but definitely larger than the package that you hope that they are going to purchase. So if I say, at the beginning of our conversation, well, most of my clients engage me at the $2,500 level. And I just throw that in there wherever it's natural. Then what happens is I have anchored this price point in their mind. If they came into this meeting with $100 anchor, and then I quoted them $1,500, they're gonna go, "Whoa." But if I at some point anchor a higher amount, this becomes their new benchmark. And then so the $1,500 doesn't seem nearly as bad, compared to the $100. So you want to anchor higher and then contrast. Make sense?
Can you like give an example? I mean, can you sort of give a paragraph on how you would do that? Like give an example?
So typically in a conversation, this is going to happen over a period of time, rather than than just a paragraph, because sometimes when it's too close, it's kind of freakin' obvious what's going on. But what that might look like is, I'm so happy that we've had the opportunity to sit down and chat. Thank you so much for considering me for this project. Let's just go over some of the things that we've talked about that you need and desire, and I use their values and all the vibes from before. Then I say, so my range that I usually work within is, you know, the $3,000 to the $15,000 price range. And after taking some time to consider what we've discussed, I think that here are three options that can work. And one might be the three and then one is a four and whatever it may be. So what I did right there on the fly, is I actually did it a little bit different, is I bracketed, which is another technique. I don't think I have a slide on that, so feel free to take a note. Is I bracketed the range. So rather than just one price point anchor, I gave them a range to consider, and that's known as bracketing. So you could use the exact same thing I just said, but instead of saying the range, it could just be that top number is the, you know, $15,000, or whatever it is I said. But if you do bracket, I recommend that you don't go below that bracket, unless there's strong reason to that they are, it's such a small project that there's no reason for them to be within the $3,000, it can be a $1,500 project. And the reason why I say that is because if you bracket and then go below your bracket when you quote, then you are significantly under-valuing you, and all of a sudden your bracket seems disingenuous. Like you're just using the technique. So make sure you stay within your bracket. You can go to the low end of the bracket, of that $3,000, and that's totally fine, I just wouldn't go below that, unless it's warranted for this. Like, if they only want 30 minutes of your time, or whatever it may be.
And with the decoy pricing, do you acknowledge. So if you've got the two $20 options, do you acknowledge that the third option is somehow more special than that second option?
So I have not used the decoy in conversations.
This is something that I have seen deployed online and in sales pages more so than, and I just haven't used it in conversations. And honestly, a lot of my quoting for my services it's more consultative, so I quote on an actual proposal. So I think it works better in the written part. What you can say, especially when I've used decoy, it's because I have digital options that I can add, and so I say look, I threw that in there as a third option because let's be frank, it costs me nothing extra. And that's why I wanted to add it as an option. Something along those lines. Now if you find something other than digital, you'll have to kind of figure out your own way to justify it. Also, under pricing, so this is an interesting experiment. It has to do with beer, so that's fun. What they did was they had two beers up for sale, and one was like $1.80 and one was $2.50. And majority of people chose the cheaper one of the $1.80. Then they got a third beer, got rid of the cheap one, got a third beer that cost like $4.50, more of a premium. People didn't say oh, both of those are too expensive, I will have no beer. Instead, they chose the cheaper option of option number two, and so again, that company then increased their revenue by changing their options. Because are not as logical as we think that we are when it comes to purchase decisions, and many of our purchasing decisions are driven by a compare and contrast. Which is great for us as influencers, because you have control over what they are comparing and what they are contrasting. Where many people go wrong is they think that their compare and contrast is them versus their competition. You are not controlling the conversation if that is your compare and contrast. Because you cannot control what your competition does. Tomorrow your competition could slice their prices in half, and if all of your conversations are based on how you're cheaper than the competition, ouch. So instead, you need to create situations where your client can compare and contrast within the microcosm of your business. So then what happened was once they did the two different beer experiments, then they brought back in the cheaper beer. So they had the $1.80, the $2.50 and the $4.50, and most of the people chose the one in the middle. Statistically speaking, we are more and more likely to choose the one in the middle. Now different personality profiles are different if luxury, if exclusivity, if elitism is part of your client's profile, they will go for the higher one. But for the vast majority of all of these experiments, the middle one is where they go. Which is great to know, because if in your company you can create three options, then that means you create two options to flank the option that you really want them to choose. And option number one is fine, it's still there for them, but you want them to choose option number two, and then make that option number two look amazing and great. I'm sure you've seen this in websites, where they have three options, and there's like a small box, and then option two is big, and it says Best Value, and then option three is smaller than the second one. They're even making it more obvious that we want you to choose option number two. And as a business owner, entrepreneur or if you're in sales and you're getting, you know, a cut from this, if they do choose option number three, great, that's a bonus for you, because your goal was number two, but now you've got option number three. So when you give your clients these options, you're actually even increasing your opportunity for revenue. So if you are concerned about your pricing, then I would say, sandwich the pricing in that you want between two different ones and I guarantee you'll probably be surprised that you get more option threes chosen than you initially thought, because especially if you add that value. And then what happens, as you grow and you get better in your craft and people know you, is now option three becomes the new option two. The first option one goes away, and now you add a new option three. And this is how you can scale your business over time. Questions on the pricing? No, okay, oh, yes.
Just about influence. When you hear that if something's priced too low, people often think that it's actually not worth.
I wouldn't get that because it's priced too low. Do you have any thoughts on that?
Right, so rarely will you hear that feedback from somebody overtly. Like that may be part of their subconscious reasoning of oh, you know, that's so cheap, I'm not going to buy that. Which I think that that's why it's so important that you have these scalable options. If you are only presenting one option, then really and truly the only option your prospect has in front of them is a yes or a no. And so then they are operating within their own ecosystem of decision making, and so their compare and contrast is based on their own experiences and values, and you have no control over that. So that's why you need to place the compare and contrast in front of them to make them focus on that. The next one that we have is anchoring. I have already covered anchoring. And I did bracketing. Look at me, know my stuff ahead of time. Oh, one thing with anchoring, this is a little twist on anchoring, is what is known as the door in face technique. And basically what that is, it's not necessarily geared towards numbers, and favors or asking of something. Is you start off with a big ask, something like can I take a month off of work, and you know that you're going to get a no, which is immediately followed by, okay, can I just have Tuesday and Thursday off. And what happens kind of psychologically is because they feel like oh, I've already said no to them on that, this in comparison to the bigger one isn't as big of a deal, okay I'll concede to that. So that's one pricing and negotiation tactic. Maybe not pricing, but a tactic that you can use is start big and the other benefit to that is, when you start big who knows, you might actually get it, bonus. And then if you do get the no, which you already expected, which is another way to get yourself used to rejection like we were talking about before, Chris, is that if you use this technique, then hearing no isn't as big of a deal, because you know you're getting what you want afterwards.
So feel free to use the door and face technique. The next one is the law of consistency. And the law of consistency basically means that if somebody, and we've already leveraged this in the past with our influential vibes. If somebody says that they are a giving person, then you need to be able to prompt them that, you know, as a giving person, I'm sure you understand that this is important for these reasons and philanthropy or whatever else. So you are actually leveraging this law of consistency based off of how they have identified themselves in the past. And basically law of consistency is if we have acted in one way, then it's difficult for us to break that pattern in the future because we know that the people in our pack might perceive us as being, you know, not trustworthy or a waffler, or whatever it is. So that's the beauty of the law of consistency. Then you can take that one step further and follow into the series of yeses. And the series of yeses is basically you have your big ask, and then you figure out smaller steps that they can take incrementally to get to that big ask. So you may want them to buy your $50,000 package, but for right now can they start in at $500. Or you know, and there's the little steps of, you know, let's meet and have a meeting. Then let's review the proposal. All of these are kind of small little yeses along the way. And this definitely does translate into the online world, as well, as to like, you know, they click here and they say yes, I want that. And then they have to enter their email address, well they are less likely to say no to enter their email address, because they've already hit a button that says yes, I do want that. So this is how you can leverage the series of yeses and law of consistency, because they have already bought in and said I'm in. And so for them to back out would not feel right. The next is the expectancy effect. And the expectancy effect is basically if you primed them about what you expect from them then they are more likely to act in accordance with that. So to bring this down into more tangible terms. If you meet somebody for the first time and they're a referral from somebody, you can say, you know, I'm so happy to meet you, I know John has said so much about you and how you are just one of the nicest, most talkative people. I can't wait to listen to some of your stories. I would use that if I'm in the intelligence gathering phase. I am priming them for, I need you to be talkative. And so I am priming them for what I expect their behavior to be. You can even say, you know, online I've noticed these things and I'm so excited that we get to meet, because from what I can tell, it seems like you're a highly intelligent person who really enjoys quality things. I saw that picture of your beautiful car. And so that leads them to, they will follow that expectancy of I am a smart person who makes smart choices and like quality services, quality products. And next is the Sullivan Nod. So I do like to share this one, even though there's not like a whole lot of science to back this one up, but there's a whole bunch of anecdotal evidence that I think leads to some legitimacy behind the Sullivan Nod. And basically what this is, that when you are presenting a list of options to your mark, you can subtly smile and nod when you say the one that you want them to choose. Waiters use this technique regularly, or bartenders, when they list off the specials. And then they subtly can smile and nod for the one that they really like. And I myself fall for this all the time. Whenever I see the waiter really smile and nod about, and then we've got, I'm like I want that, whatever that is. So you can even incorporate some of your body language to be influential in these moments. And last but not least, we have the half and half technique. This is a little bit of a spin off of the expectancy. Oh, see, so happy somebody laughed at that slide. I'm so happy, because I put that in just for me, because that cracks me up. So I'm happy you got it. All right, the half and half technique is basically where you state a fact that they will naturally agree with, followed by your influential suggestion. And what is amazing is that that fact can be something as simple as, if you're speaking to a woman, you can say, as a woman, I'm sure that you can see the value in X, Y and Z, your influential intention. Or if you're speaking to a man, As a man, I'm sure that you can see how amazing X, Y and Z is. That presumptive phrase is that they are primed to say yes to that, and something about our brain makes us think well, if that's true, then this must be true, too. If that's true about me, then this must be true. So you can use it with the simple phrase of as a man, as a woman, as a leader, as a CFO, as an entrepreneur, simple, factual phrases about them. You can go one step further and say the phrases that tie into their influential vibes. As somebody who values independence, I'm sure that you will be so excited about this new opportunity. So that's the half and half technique. Half is a fact or something that they naturally, easily agree with, followed by your influential intention. And that, my friends, are the influential strategies.