Magic of Oats Cookie and Coffee! - Product Pricing strategy

“Attendant: Hello Ma’am, good evening! What would you like to have today?

Customer: Well, just a cup of cappuccino please. I like it.

Attendant: Ok Ma’am. We, today, have 3 new options for cappuccino.

1) Small cup (200 ml) of Cappuccino – $3.5

2) Medium cup (300 ml) of Cappuccino – $4.4

3) Medium cup of Cappuccino with our Signature Oats cookie worth $1 – $4.5

Which one would you like to have?

Customer: The 3rd one sounds fine. Please give that.”

What just happened? The customer’s mind took the small cup as “ANCHOR”. She then perceived that, by spending $1 she is either getting a signature oats cookie for almost free or a 100 ml of coffee free. Spending $0.9 is a total waste and option 2 will have zero takers. Here, a point to remember is, no-one would choose the middle option but it works to project3rd option as a great value for money. The middle option is termed as “decoy” and instantly allows a customer’s brain to evaluate the options. Here’s what we have achieved by this “decoy” pricing strategy.

1) Take customer’s mind away from base option (small cup) and increase our chances of higher revenue (our desired option-3)

2) By introducing our “decoy option 2”, we ensured the talk only happens between 2nd and 3rd option (ensure none should choose option 2)

3) By introducing something of good value (a cookie) to 3rd option, the overall value increases.

The #economist, #NewYorkPost still use this concept to sell their product.

#Apple has classically used it to sell their ipods by placing 2 decoys instead of 1. The 32 GB version for $299 offers 16 GB additional space and 4 more features for just $70. On the other side, one needs to pay $100 extra for 16GB for 3rd option. Apple aimed at selling only 32GB version and keeping the remaining as decoys.

In above case, if the attendant had said “Ma’am, we have 2 options, a medium cup of coffee for $4.5 with our signature Oats cookie and a small cup of coffee for $3”, the chances of a successful sale for $4.5 would have decreased. Option 2 works to assign a logical value to option 3 and push option 3 overall. Above is a good strategy when, as a company, you want to sell only 1 option out of the lot.

Human brain works on relative value. Marketers need to find the right “anchor” price in consumer’s mind, beyond which a customer will assess the correct value of upcoming offering from their brand.

Now forget above offering and let us play again with the same “coffee” and try to make more offering.

1) Medium cup (300 ml) of Cappuccino – $4.4

2) Our Signature Oats Cookie – $1

3) Medium cup of Cappuccino + Signature Oats cookie – $5

Here, a company is trying to sell again the option 3 but it expects that a customer also assigns a value to option 2 so that it is perceived as a good buy, if bought separately. It leads to a classical product bundling, option 3.

Lenovo K4 Note along with ANT VR headset costs Rs 12,499.
Lenovo K4 Note along with ANT VR headset costs Rs 12,499.

This is exactly what #Lenovo did by launching their Vibe K4Note (INR11,999) with Ant VR Headset (INR 1299) for INR12499, bundling together. The AntVR headset is now sold separately as well for a good price.

 

 

In our next example, you will realize that the company is now aiming at selling all 3 options(for example, cars variants). Here the pricing is more linear as features/benefits increase.

1) Medium cup (300 ml) of Cappuccino – $4.4

3) Medium cup of Cappuccino + Signature Oats cookie – $5

3) Medium cup of Cappuccino + Signature Oats cookie + a belgian chocolate cookie – $5.5

So, for a successful pricing strategy, start from what you want to sell. Price it, as per how you want consumers to think and behave. Do not forget what the competition is offering.

Remember, you have the CONTROL on how you want consumers to perceive your price and value by establishing an appropriate ANCHOR.

We love options. We just cannot decide if we are given only 1 option. We just can’t “choose”. New car, smartphone launches just do that. They satisfy our hunger to compare and buy a suitable variant for us by offering a variety of options.

More Isn’t Always Better

Remember, more choices do not always help us choose but may confuse us and lead to dissatisfaction. Above is a famous study, on Jams and “choice paralysis”, that was published in #HarvardBusinessReview in 2006. It concluded that beyond a point, human brain is unable to make a decision when a motley of flavours or options are thrown and we end up as “dissatisfied” customer. I guess, one would never be satiated in such an instance, as the feeling of whether you have chosen the right option are not, constantly keeps on coming. On the flip-side, lesser the options, easier is the decision. A customer also feels that he/she has taken a full informed decision before buying that variant. Whether it is a #Heinz sauce or a #BaskinRobbins ice cream cup, we usually choose between 4-8 flavors and ignore the others. Companies need to get that balance right (offering multiple options and managing dissatisfaction due to additional options).

So, when you are trying to make a product offering, wear 2 hats of a psychologist’s and a marketer’s, for a successful product offering creation that would finally lead to a sale.

This article was first published on //www.linkedin.com/pulse/magic-oats-cookie-coffee-lakkshay-bussi/

Author:

Lakkshay Bussi

Lakkshay Bussi

Product Marketing at Medtronic I Marketing and Branding Blogger at Medtronic

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