The Second Law of Marketing: Give Your Clients Options

Source: VeraSage Institute

The following includes excerpts, reproduced with permission, from a blog entry by Ron Baker. Baker discussed the The First Law of Marketing in a previous issue.

The Second Law of Marketing is just as critical to help your organization communicate value, and help convince your customers to pay for that value. One of the most customer-centric strategies your company can deploy is to offer an array of options to your customers. It is very “outer-directed,” rather than just offering a one-size-fits-all, take-it or leave-it option.

There is strong empirical evidence that offering customers at least three options can often times result in them purchasing more, at a higher price, than merely offering one take-it or leave-it option. When two options are presented, the decision is mostly made on price, yet when three options are offered it becomes a decision based on value.

Offering options creates the anchoring effect, whereby the customer is now comparing prices to your highest offering. This is why Victoria's Secret offers a diamond ornamented bra for $6.5 million that no one probably ever bought; and Prada stores always display one incredibly high-priced article that acts as an anchor for all the other products.

Another behavioral phenomenon is the framing effect. What you compare something to will determine an acceptable price to pay. If I offered to sell you my Unicorn, you'd have no idea what to pay since no one has ever purchased one. But you're happy to pay for coffee in little pods – which are more expensive than coffee purchased in bulk – because you are comparing it to Starbucks.

When you present three options to the customer, you are also subtly changing their psychology. Rather than thinking about whether or not they will do business with your company, the options nudge them in the direction of thinking about how they are going to do business with your company.

For the complete entry, read “July 18th Show Notes: The Second Law of Marketing: All Prices are Contextual.”

From VeraSage Institute, July 20, 2014, www.verasage.com/index.php/community