Pricing Model Strategy

Pricing Strategy

I was watching a marketing show on National Geographic TV -I wish I could remember the name of the show and if you recognize it let me know the name in the comments. It was talking about pricing model strategy, which can literally make or break a company.

Pricing Strategy

Movie Theatre Popcorn Sizes

The example used involved an experiment in a movie theatre with popcorn sizes and pricing. The first test group was offered a small popcorn for $3 and a large popcorn for $7. The majority chose to buy the small popcorn. When the customers were asked why they chose the small option, they either expressed that $7 was too expensive for a popcorn or the small was a better size for their appetite.

The second set of customers were offered 3 sizes. A Small for $3, Medium for $6.50 and Large for $7. A much higher number were now buying the Large size. When the movie patrons were asked why they chose the large they exclaimed, “It was only $0.50 more to get the large!” They perceived so much value in the extra popcorn for only $0.50.

Customers are often more influenced by the fear of loss of savings than by actual savings.

This is why you get never-ending mattress sales like this one at The Bay:

This is a true story that happened to me. This is a great example of how companies can use this physiological reality in a deceptive way.

Starbucks Size Names as a Marketing Tactic

One other interesting marketing tactic used by Starbucks is how they name their sizes. Small is Tall, Medium is Grande and Large is Venti. Customers can go to one coffee shop and get a medium for $2 or they can go to Starbucks and get a Grande for $2. Although this isn’t enough to completely influence a purchasing decision it does speak to our subconscious mind by adding perceived value to the $2 Grande. Since we would naturally assume a grande has more coffee that a medium.

When creating your pricing model. Clearly show customers their potential savings by going for a larger plan. More important that that is always be honest and straight forward with your customers and what they are getting in each of your price plans. And never exaggerate value.



4 thoughts on “Pricing Model Strategy

  1. Pingback: vidrack Business Models selling SAAS

  2. Steve says:

    There was an article I read a while back (can’t recall the site) but it discussed customer value and pricing options… offering three choices / price points and how that seemed to generate more interest and ultimately sales.

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