Offer Design and Price Models: The Customer Loves the Golden Middle

November 07, 2017

Offer Design and Price Models: The customer loves the golden middle

Customers are rarely rational when it comes to purchasing decisions and price perception. They simplify matters and in doing so act irrationally – but still predictably. Two of the approximately ten behavioral pricing effects are the anchor effect and the tendency toward the middle. With the anchor effect, customers can be subconsciously influenced by price anchors, such as high prices set early on. The tendency toward the middle means that customers typically opt for the middle product when given three choices (low, medium, expensive). New York taxi drivers use both effects. When paying, customers are suggested three tip amounts (20, 25 and 30 percent), though by no means have to choose one. In doing so, taxi drivers increased their average tips from10 to 22 percent. That’s ultimately 144 million dollars a year.

Advice of Simon-Kucher experts:
Familiarize yourself with the effects of behavioral pricing and factor them into your offer design and pricing. You’ll be able to set the best possible prices only if you know how to predict your customers’ irrational behavior.