Monday, November 23, 2015

Downgrade Free Upgrades

“Buy an 8-inch cake and we’ll give you a 10-inch at no extra charge!,” says the bakery salesperson to the birthday cake shopper. To the next birthday cake shopper, though, the salesperson says, “Buy an 8-inch cake and, for only a penny more, we’ll give you a 10-inch!”
     How strange that the person asked to pay the tiny extra amount is more likely to select the 10-inch model than the person who would get it absolutely free. To ascertain why, researchers at China’s Southwestern University of Finance and Economics-Liulin offered either a free or token price upgrade to real shoppers for one or another of a range of items. After analyzing the shoppers’ reasoning, the researchers concluded that the token fee made it easier to appreciate the value of the deal compared to the price of the regular version. Zero makes a poor comparison point.
     Monash University researchers saw a similar oddity that led them to say retail customers would be happier with a drop from a 5% interest rate to a 1% rate than if the drop is from 5% to 0%. Again, this is because zero doesn’t serve well as a consumer’s anchor for appreciating the magnitude.
     When the cost is more than a penny, the general principle still holds for an initial upgrade: Make the relative cost calculation easy for the shopper. They’re more likely to choose the upgraded alternative if the cost is a round number. So if the prices on the bin tags are $19.99 and $29.99, the salesperson says, “For only $10 more, here are the additional features you’d get.” The easy comparison facilitates acceptance of the upgrade.
     However, get set to pile on another oddity for subsequent upgrades during the same shopping trip. Here, shopper agreement to the upgrade is more likely when the price comparison is more difficult. Researchers at Babson College and Baruch College found that, when considering subsequent upgrades, people perceive the differences in prices between the regular and upgraded versions to be smaller if the comparison is harder to compute. For these subsequent upgrade considerations, quote the actual price points rather than rounding them, and discuss the prices in detail.
     How to explain why this works? When the shopper has expended considerable mental energy deciding whether to put out even more money on another item upgrade, their resistance to accepting an upgrade which benefits them is worn down.

For your profitability: Sell Well: What Really Moves Your Shoppers

Click below for more: 
Detail Subsequent Upgrade Price Comparisons
Give Shoppers a Comparison Point

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