Use ‘Decoy Effect’ to Price Your Subscriptions
How to Increase Revenue Through Pricing Plans
What do we really know about what we want? Psychologists believe – not that much. And our minds can be easily tricked into choosing options that aren’t often in our best interests. Sometimes these choices may even be detrimental to maximizing utility for us as consumers.
For example, let’s examine the concept of ‘value.’ Value is a relative term and, logically, it has no absolute worth. It’s a proven fact that a ‘fair’ price can be different for the same product or service depending on circumstances and context.
As a growth hacker, you need to use this psychological loophole to maximise the perceived value of your SaaS subscription plans. Here’s a neat hack to help you achieve this with minimal effort.
Just Hack It:
- Psychologists call it the ‘decoy effect’ and it is a pricing hack than can really help you to increase sales of your premium plans, if done right
- In fact, you would’ve seen it used in the pricing of many goods and services but probably never gave it too much thought
- The basics of this pricing technique are that, instead of having two pricing plans – say, an entry-level one and a premium one – you add a third, ‘decoy’ plan
- Say, you charge $20 per month for your no-frills, starter plan and $50 per month for your everything-and-the-founder’s-kitchen-sink one. The majority of your users will typically end up going with the starter plan. We’re all cheap skates…
- By introducing a third ‘mid-tier’ plan, you make the choice less obvious. Say, you price your new plan at $30 per month and allow users to gain access to most of the features of your premium plan, save a couple
- Now users are more likely to go with the mid-tier plan due to their having an additional comparison point. See, value IS a very relative concept
- Try it, and watch your revenue grow…
- Still don’t believe us? Next time you’re in your local cafe, pay attention to which of the three cup sizes people usually tend to go with
- Growth hacking is all around you!