
Putting Prices Into Focus - Why We Have No Clue How Much Stuff Should Cost - tortilla
http://www.washingtonpost.com/wp-dyn/content/article/2008/06/21/AR2008062100149.html
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tortilla
If you have an online business with a subscription based revenue model, would
it help sales if you set an artificially high price point for one level (high,
medium, low, free)?

Anyone have experience charging just one level to multiples?

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ljlolel
Actually, that does work! I forget the precise names (this is studied in
Behavioral Economics), but there are a number of cognitive biases which cause
people to wrongly evaluate their decisions.

For example, say you have two choices A and B. Imagine they have different
characteristics along 2 dimensions X and Y.

Imagine A is higher along dimension X, while B is higher along dimension Y.
Now, suppose that looking at A and B, you would choose A. Add a third choice C
which is more strongly along dimension Y than A or B. Now, you have a choice A
which is strongly along X, choice C which is strongly along Y, and choice B
which is a little X and a little Y. Also, you don't really like or care about
C. These results were shown with numerous experiments: presented with choices
A, B, and C, you will often choose B. Notice that before, without the
irrelevant alternative C, you chose A. But add in a choice that you don't even
care about, you prefer B. Rationally, that shouldn't happen, and economists
try their best to explain that but fail.

As for having a super-high priced item, that makes sense for a number of
reasons. For example, one reason may be the halo effect
(<http://en.wikipedia.org/wiki/Halo_effect>). Just the existence of a very
high-priced, very high-value item can make people perceive your brand to
generally be of a higher quality.

Also, some behavioral economists (e.g. Benabou) postulate that people have
"identities" for themselves which they refer to when making consumption
decisions. So, someone might think of themselves as the frugal buyer, and so
they will always go for the cheapest alternative which gets the job done. A
lot of people probably think of themselves as the middle-of-the-road average
person. So if you make an super-double-over-priced option, then more people
will buy the over-priced option because they perceive it to be more average.
Plus, some of the people who consider themselves to be big spenders will buy
the super-double-over-priced option anyway!

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tortilla
Awesome, thank you. I've been looking for more information on this stuff. I'm
helping a friend with his service's pricing matrix (trying to simplify and
increase conversions).

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jgamman
they have 'menu engineers' now? does anyone else feel as though the word
engineer has completely lost its cache?

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wallflower
Singular. Menu engineer.

[http://www.portfolio.com/careers/job-of-the-
week/2007/05/14/...](http://www.portfolio.com/careers/job-of-the-
week/2007/05/14/Feeding-Financial-Success)

