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Compromise Effect
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Fri Mar 22 2002 at 20:38:18
Most people are
uncomfortable
buying either the
cheapest
or most expensive item available, usually preferring something in-between. Companies take advantage of this "
compromise
effect" by
manipulating
their
product line
s to increase sales of their most
profitable
items.
Lets say you sell
widget
s. You have a basic model that sells for $50, and you have a
top-of-the-line
model that sells for $200. People would feel the most comfortable buying a
midrange
model that sells for around $100. The idea is that the basic model is seen as
cheap
, while the top-of-the-line model is percieved to have only a small benefit over the midrange model (for a hefty fee).
Companies take advantage of this by inventing an arbitrarily higher-priced top-of-the-line model, thus forcing a
comfortable
midrange price on their
customer
s. One well known example is attributed to
Williams-Sonoma
; they were able to increase sales of its $275
breadmaker
by introducing a second, slightly larger model at a price of just over $400.
Xerox
was able to boost sales of its
high-volume copier
to large corporations only because it introduced a higher-priced model with a few extra
bells and whistles
. Xerox succeeded because they released a model that
purchasing manager
s could feel good about
rejecting
.
Most
salesman
operate along similar lines. When they start out by suggesting a
ridiculous
ly high price, its not because they think they can get it, but rather to establish the highest possible
reference
point
in the mind of the customer. They know they will be more
successful
by starting high and lowering their prices.
People who fall
victim
to the
compromise effect
are essentially tricked into thinking they got a good deal. This isn't to say that the product is
worthless
or that the customer is
foolish
for purchasing the item. Its just another way of making people feel good about spending their money.
sources:
http://www.washingtonpost.com/ac2/wp-dyn?pagename=article&node=&contentId=A41329-2002Jan26¬Found=true
http://www.disenchanted.com/
printable version
chaos
kohan
The Endowment Effect
Bleeding Edge
widget
cutting edge
midrange
Williams-Sonoma
Xerox
Door-in-face technique
salesman
Arcosanti
customer
bells and whistles
compromise
economics
Profitable
marketing
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