Partition Prices to Highlight Overlooked Benefits
This is the 4th and last in a series on pricing strategy based on an article from Harvard Business Review of the same title. The purpose of this series is to stimulate thought and conversation among practitioners about pricing as a strategy rather than simply as a way of driving revenue. So far we have covered the following 3 pricing stragies:
We have also presented a brief discussion of the commoditized consumer.
Partitioning Prices to Highlight Overlooked Benefits is the most difficult to grasp and execute. The research found that poorly executed it has the ability to alienate customers. They see it as burdensome and a form of “bait and switch”. Think luggage fees that have been partitioned out of the normal ticket price for airlines.
If done correctly, however, partitioning can have a powerful effect on buying behavior. Basically, the partitioning strategy is based on the proven premise that customers don’t really tune into benefits they might find valuable unless they know their value. So, if you include items within a package and the buyer doesn’t know the value of the individual items included in the package they don’t really have a way of distinguishing between product or package offerings.
According to research, “Presenting a cost as a set of smaller mandatory charges invites closer analysis and therefore increases the likelihood that a customer will revise a routine consumption behavior.” Basically, this means that if you use package pricing you need to set a frame of reference by either identifying the individual prices of the items in the package or by clearly showing that the cumulative value of items in the package exceed the package price by a specific amount. Say, for instance, that to induce people to buy your best burial package you include better quality caskets, a video memorial and DVD, 10 death certificates and your premium level register book. If you don’t partition those items as having a specific price customers may not see the value of going from better to best.
Let’s be even more specific: Let’s say you offer a “good”, “better” and “best” packages. In your good package you offer two caskets. In your better package you offer 3 and in your best package you offer a choice of 4 caskets. Partioning strategy tells us that you should should show the value of the caskets in each package. That doesn’t mean the price of each casket but something more like you would see in a retail advertisement. Think of a “callout” bubble next to the pictures of caskets that says something like: “A value of $2,995” or (for your Best Package) “A value of $4,495”.
The research concluded that “to those who saw the price partitioned, quality mattered: the better package induced more people to choose the more expensive …people are unlikely to factor a benefit into their choice unless an explicit charge is made for it.”