Hey Pricing Gurus,

Author Dan Ariely has a new book out called Predictably Irrational: The Hidden Forces That Shape Our Decisions.

In it he says...

People almost never calculate an ROI to decide if something is worth a price.

Rather, they compare the price of an item to other things, and establish a relative value, not an absolute value.

He gives a wealth of examples. See the image below. Imagine how different the results will be if you take out the middle choice.



So, for your business or the businesses of your clients, what are the pricing implications of people assessing ROI in relative vs. absolute terms?

So is he saying that a lot of people will jump at the Print & web subscription option, simply because it's better value than the Print only subscription at the same price?

Whereas if you took out the print only subscription more people would go for the web only subscription.

Exactly.

There's another example of 3 houses of equal size and desirability where 2 are colonials and one is modern.

One of the colonials needs roof work and has been discounted accordingly. The other 2 houses cost the same.

Under these circumstances, people tend to go for the colonial in better condition. The reason is the 2 colonials make for an apples-to-apples comparison and they prefer the unblemished version. It gets too difficult to compare the modern home with the unblemished colonial so folks veer away from it.

With that in mind, what examples of this sort of thing do you come across in your business?

That's very interesting.

I can't say I've seen an offer presented in such a way in a salesletter... at least not that I can remember. They tend to be Gold-Silver-Bronze and priced accordingly.

I've got some testing to do