There are triggers that persuade people to buy…
…and when you know how to activate them, it can be the difference between making or losing the sale.
Today, I’m going to tell you about one of my favorite buying triggers.
Is $5 Always Worth $5?
The short answer is, no.
Back in the 1980s, two researchers, the nobel laureate Daniel Kahneman and Amos Tversky, stumbled on this fascinating facet of human buying behavior:
When people make purchases, they create a product context before pulling the buy trigger.
What’s a product context?
It’s the facts that surround your product (and yes, smart online marketers know how to take advantage of this to sell more stuff).
Question is how does it work?
Here’s How “Product Context” Persuade People to Buy
To understand how it works, let me take you back to the psychological research…
Kahneman and Tversky posed this question to research participants:
Imagine you’re about to purchase a leather jacket for $125. The salesman informs you that the product you wish to buy is on sale for $120 at the other store. It’s 20 minutes drive away. Would you make the trip to the other store?
How many people do you think said yes?
Not many – only 29% of the research participants agreed to make the drive.
…But here’s where this experiment got interesting. When Kahneman and Tversky changed the product and price, more people agreed to make the drive for $5.
Imagine you’re about to purchase a calculator for $15. The salesman informs you that the product you wish to buy is on sale for $10 at the other store. It’s 20 minutes drive away. Would you make the trip to the other store?
How many agreed to make the drive now? Sixty-eight-percent. What a huge increase, right? What’s going on here?
The context was different. In the first example, $5 was 4% savings, whereas in the second $5 was 33% savings. Sure, it was the amount of money, for the same amount of time, but the % saved – the context – is what made people act.
Now let’s look at a real-life example of context at work.
How Amazon Uses Context to Sell Stuff Online
Remember, people tend to accept offers when they’re saving a significant percentage of money on their purchase. To see how this works online, look no further than Amazon.com.
If you take a second and load up one of their product pages, you’ll notice two different prices: list price and the price you pay. You’ll also see another number right below the price you pay which says “You save.”
How does this relate to context?
Well, Amazon constructed a scenario where people believe they are AT the store with the better price. There’s no driving necessary. You see how much you’re saving and think you’re getting the good deal right here and right now.
This is a great tactic. It prevents your customers from shopping around at competitors. However, let’s say you don’t want to discount your products. How else can you use context to get sales?
Demonstrate Tremendous Value
When you demonstrate the amount of value people get from your product, they’ll often find that it’s cheaper than the price you’re selling it for. This essentially creates a discount without offering a discount.
For example, let’s say you’re about to launch a brand-new $97 product. In it, you’ll include an ebook, 2 hours of recorded audio, and three 30-minute videos. Additionally, you’ll include two 1-hour group telesminars.
Now let’s say your hourly rate is a modest $50. From the start, you can tell people that they’re getting 5.5 hours of your time PLUS an ebook. To get equivalent help in consulting, it would cost, at the least, $300, so $97 ain’t so bad.
Or, keeping with the Amazon example, this means your list price is $300, the “price that people pay” is $97, and the “you save” amount is $203. However, the best part is, you created a discounted context instead of actually giving a discount.
Offer A Sales Bonus
If you’re selling stuff online, a common way to create a persuasive context is to offer a bonus. However, if you’re including a bonus, your prospects must consider it significant for it to work. Let me explain.
In the research experiment, there were two feelings that the research participants felt. On one hand, $5 was 4% savings, whereas on the other, $5 was 33% savings. The latter seems more significant than the former, which is why it was more persuasive in testing.
Now, the question is, what’s a significant bonus online?
When dealing with digital products, many marketers often include bonuses that total to more than 100% of the purchase price.
It seems a little crazy, but when you’re working with digital goods, the marginal cost of distribution is zero. Instead, it’s all about how people perceive the bonus. To read more about that, check out my article on the power of perception.
The “Context” Marketing Action-Plan Checklist
Here are the four ways you can use context to sell stuff online:
1. Compare your price to higher priced alternatives because it will help you create the context that you’re offering the best deal.
2. Demonstrate your product’s value. Instead of merely stating the price, go into detail about what people will get and explain how much it’s all worth.
3. Offer a bonus. If you don’t want to discount your price, offer a bonus with a marginal cost of zero. This works exceptionally well… especially when you use perception to build up price expectations.
4. Offer a physical bonus. If you’re selling a digital product, chances are you’re working with a high profit margin. You could use some of that profit to offer a physical good. This helps you sell because people are better at assigning value to things they can touch.
Here’s the section of the blog post where I ask you to leave a comment. Have you used context to sell stuff online? If so, how did you use it? Please feel free to provide links to your work. This is a great opportunity for some self promotion!
You have a brilliant mind, Derek. I guess it all round up to product value and how you present it to customers. As a salesperson, I think I can make use of your suggestions here to drive up my sales. These are truly helpful.
Stumbled onto this site and I’m really glad I did. I like these ideas!
When people purchase our apparel, mainly our custom shoes and leggings, they don’t know what to wear with them except ‘black’ or they’re confused on what do next altogether.
One thing I have done to SHOW value in their purchase is to tell them to send me a picture via email of their purchase and I will create “Ensemble Inspirations” via Polyvore and make a Pinterest board dedicated JUST for them. I will pick out tops, accessories, makeup selections according to their eye color, hair styles for their hair type and color, inspirational quotes, etc. So I become their personal stylist for that purchase.
I do this so they see the versatility in our product and have the confidence to shop and create an ensemble around that one purchase.
They LOVE this! The response has been stupendous!
Also, whenever we do pop-up shops we usually decrease our prices, because it is an impulse buy, first impressions, building trust, etc. We slash the prices on the price tags (original vs. pop-up) which are tiny, but I really like the idea of putting the price someone saves from the original price BIG so they can see the deal from across the room!
We have a pop-up in a few weeks. I’m going to try that. Cheers.
I definitely try to communicate value which I think is essential for my industry (handmade). So many things are mass manufactured that it’s easy to get it at a much cheaper price, but it won’t ever be the same thing. (Hand vs Machine Made)… I’ve thought about a freebie before but then there’s always the concept that I want to keep it something that doesn’t financially put me out to provide. I might offer a range or dependent on what is purchased to either match something or something that could easily fit.
Great article, I loved reading about the comparison between the perceived savings and how $5 isn’t always $5!
[…] Here’s How “Product Context” Helps You Sell More Stuff Online – few action steps how to price your product using some simple and smart techniques. […]
I like the idea of “bundling” to demonstrate greater value. Definitely have some ideas to pull from this for my continuity program 🙂
Just to followup on creating that context, this is one reason I recommend that people publicly post a consulting offer (or something similar) with an hourly rate published. This way, not only are you making that available, you’re providing context.
When you do that, you’re telling people on your blog that what you do is valuable. And you’re also providing a point of comparison when you price products in the future.
Nice one, Derek. 🙂
Publishing an hourly rate can work, but I tend to avoid it. I hate when people equate my time with money. However, in most consulting based businesses, an hourly rate can work… but you’re better off focusing on the results you offer as opposed to the price per hour that you charge.
You didn’t have to tell me this…I’m a sucker for sales! ha ha But it’s awesome to see an actual study on this…thanks for the post!
I’m getting prepared to launch our new website Ready to Build. It’s not up yet or I’d link to it. On our new site we’ll be selling the kits to build the jewelry boxes you see on that site. Anyhoo, I’m reading everything I can get my eyes on to increase traffic and sales. Thanks for your articles.
I always hated reading blogs till I stumbled upon (not referring to the personalized recommendations platform) your blog. Having studied psychology while in college, I found many avenues to apply what I learnt to the business world.
Your blog is very intuitive and cerebral in every sense of the word. Keep it up!
Actually, what I do is first I offer the free stuff (free vector T shirt designs), then I teach them how to do it (how to easily create vector T-shirt prints) and then I ask visitors to buy a mountain bike shirt (if they don’t have the time to print it for themselves). It works great!
I buy lots of books regarding social behavior and marketing (Buyology, Tipping Point, etc.). I might as well stop buying those books and read your blog, Derek. I love it.
Thanks a lot for the great work!
[…] What’s the key to attracting leads and making sales online? […]
I never thought about how you price things on your site or, rather, demonstrating value in such a way that people really visualize that they are saving money. The Amazon example is pretty damn awesome. Low tech before high tech. =)
You’re right. I think of the idea of context as chunking. It isn’t the dollar amount saved that drives someone all the way across town, it’s the chunk of resource (in this case money) relative the to total that seems to count. The other thing is the feeling not that one place has something “on sale” but that the (in the case of the $15 product) that one store is taking advantage of the buyer. The mental model says, “This person is ripping me off.”
Hmmm… this is an interesting example.
While I agree that the difference is a contextual one, I found that the context that made the difference for me wasn’t the percent savings as much as the item itself. What I mean is that upon reading the example I thought to myself “$15 for a calculator!?” My issue was with the idea of spending that much on a calculator. Not the percent savings. — If it had read “scientific calculator” my internal response would be completely different, and I suspect it would be for others as well.
So for me this is a good example of how we might be swayed, as you suggest, by the value of a product.
Good call Derek. And great thinker for us all.
Great post bud and your right on this one “Demonstrate your product’s value.” I always implement this and it works all the time. Also you can create a Mafia Offer, An Offer You Can’t Refuse! :).
If I remember correctly, I found your site like a few weeks ago. But not I found it in a different context… from copyblogger. So I had to subscribe.
We humans and our social proofs! duh!
The is solid advice for anyone that is working on a pricing strategy for their business. Another great technique that you can use is to have a decoy, where you compare 3 products at different price points. two of the products have similar elements and one is totally different.
The decoy product is the one that is not a good deal, but is similar to the product that you want other people to buy. Like you said, price is very relative and NEVER absolute. People need a reference when they are making a purchase decision for something new.
The Underdog Millionaire
A couple of things Derek because this stuff fascinates me anmd I really enjoyed reading your post.
You’re familiar with convincer strategies, right? You know, some people need to hear about something once to buy, some people several times and others again and again.
So big business (think car retailers on TV) batter you again and again with the same message hoping to hit everybody.
Well I’m sure there are REVERSE convincer strategies. For instance there are car dealerships I’d never set foot in simply because I am so sick of their pathetic and relentless advertising.
Also, if I’m looking at a digital product that offers me 10x the value in ‘free’ product. I’m outta there. I simply don’t want it, it overwhelms me and actually reduces the value to me because I don’t want any more crap littering my hard drive and I don’t even want to read about it.
I’ve read Predictably Irrational, Sway, Nudge, Made To Stick and (my favorite) How We Decide etc, but nowhere in any of these books have I heard this spoken off, yet I feel sure I can’t be the only one.
Having said that maybe it’s similar to the jam experiments I’ve read about so many times in which people buy more when they have less choice?
PS Isn’t the trick of leaving the top price for people to see a bit like car dealerships do with ticket prices, just basic anchoring?
It’s not just you, Tim! I, too, get put off by overwhelming ‘free’ bonuses and adverts like the one you describe.
I think with the bonuses, it sounds like they are too desperate to make the sale so it makes me suspicious of their motives and the quality of their product. For me, a bonus should be a bonus ie. an added extra which is worth having but worth less than the price of the original product, or equivalent to it if the product is of a particularly low value, ie $7 products.
I even remember a car dealer over here in the UK offering two cars for the price of one! I would NEVER have bought one of their cars in a million years!! It just sounded TOO DESPERATE.
Derek, do you think there is a limit for the price/value of bonuses in terms of percentage of the price of the original article?
It’s basic anchoring, yes, but it doesn’t have to be sleazy. Amazon pulls it off, as do many other discount shops.
I don’t suggest inflating the prices for the sake of dropping them, but an anchor can work wonders.
[…] Here’s How “Product Context” Helps You Sell More Stuff Online […]
Great stuff Derek, I like the ideas to compare your products to other more expensive alternatives while giving lots of value – so the consumer has an obvious choice. I am going to bookmark this for the next launch I do.
Amazon has been a huge learning source for me by watching how they run their site.
After seeing our test results from displaying a “list price”, “our price”, and a “you save this much” combo on each product page, we made it the standard on every site.
Of course, you have to be careful when borrowing from the big dogs and make sure you test test test everything before you set it and forget it. Not everything is going to have the same effect on smaller sites. In some cases we actually had adverse effects with different tests.
You can also never be to clear or obvious about the benefits you offer, whether it’s price, services, bonuses, whatever. Your customers aren’t stupid, but sometimes we all need things spelled out in front us.
Oh yea… people MUST test everything. If you don’t, you’re going to miss out on huge gains potentially.
Hi Derek. This is my first time on your site and I wanted to let you know that I appreciated this article. As I’ve grown by online blog and business ventures, the idea of ‘social triggers’, value, bonuses, etc has taken on quite a different meaning that the type of sales and marketing I’m used to….which is why I found your post quite helpful. Look forward to more in the future.
I’d love to know how this all works in the pool business. Do you do anything like that when you’re trying to sell fiberglass pools?
“Sway” is also an excellent book about the rationality of irrational behavior.
Derek, this is an excellent article, well-written and clearly presented.
I have used these tactics in the past, and I’m working on similar pricing atmospheres for the current project I am working with.
Sway was a great book too. There’s a lot of good books on this type of stuff actually. I wrote an article last month that talked about some of the new ones. Here’s a link if you haven’t seen it:
I am continually fascinated by the way our minds work. Have you ever read “Predictably Irrational”?
Of course :-D.
Predictably Irrational is one of my favorite books on this type of stuff. Do you remember how arousal affected our judgment? Crazy stuff, right?
Humans are crazy people!