We are all looking for ways to increase revenue for our organizations, regardless of whether we charge an entry fee or request a donation for people to visit our venues. Today, we’re revisiting a TED Talk from 2008 to learn a trick from behavioral economics about setting prices.
Behavioral economist Dan Ariely wrote the book Predictably Irrational about how consumer behavior can be counterintuitive. In his December 2008 Ted Talk (viewed by nearly 4 million people!), Dan provides an example of “options pricing” that has real world applications for arts marketers.
In this example, he describes seeing an ad for The Economist that made absolutely NO SENSE. It described three subscription options: one that offered an online subscription for $59, a second that offered a print subscription for $125, and a third that offered a joint print/web subscription for $125. That’s right – option two and three were the same price, but option three clearly offered much more value with no additional cost.
Nobody at The Economist could explain to Ariely why the pricing was set up this way—apparently it was a mistake on their end. But he was curious if these choices impacted subscription sales, so he asked 100 MIT students to choose one of the three options in a quick study—84% of the students selected the third, priciest option. Nobody chose the middle option . . . so he repeated the study with another 100 MIT students, removing that option—and only 32% of the students chose the most-expensive option! It’s not rational, but the middle option made the $125 offer look like a better value. Without the middle option, the $59 offer looked like the best value.
Ariely’s conclusion is that we don’t know our preferences that well so we are susceptible to external forces that can shape the value proposition of what we are looking to buy; i.e., we need context. Thinking is hard! Make it obvious what the right choice should be, and make me feel good about making that choice.
How can your venue benefit from using a “middle price” to enhance the value proposition of your pricier tickets? In a venue with seats, it’s easy to make sure that seating sections include three price points. But for a museum, test using irrational pricing to upsell packages with concessions, multi-day passes, memberships or merchandise. While it might not immediately make sense to your visitors, offering a middle price point might just make sense to your bottom line.