Online Decision Making: What Really Drives Customers To Choose One Option Over Another?
Traditional economic theory speculates that our purchasing decisions follow the principle of “utility maximization.” In other words, when we try to decide which item to buy, we measure each potential selection against the criteria most important to us (cost, warranty, features, safety, etc), and choose the option that most accurately meets our needs. This model also assumes that our preferences are welldefined and constant over time. But is this actually reflected in the ‘real life’ decisions we make every day? Behavior psychology suggests just the opposite.
The Psychological Perspective
The psychological perspective suggests that each purchasing decision we make is actually quite dependent upon the context in which it is made. The value that we attach to a particular option can vary significantly, depending on our mood, our previous experiences, the number of options available, or any of several other factors. One of the most intriguing aspects found to influence our decision making is the manner in which the various options are presented.
Relative Thinking in the Decision-Making Process
Studies suggest that information processing is directed byrelative thinking.In other words, when making financial decisions, we tend to focus onrelativeprice differences, rather than the individual prices themselves.
For example,Predictably Irrationalauthor Dan Ariely once presented the followingEconomistsubscription offer to 100 MIT students and asked, "Which would you choose?"
As shown below, most of the students chose the combo deal. Nobody wanted the middle option.
But, Ariely wondered, what happens if you remove the option that nobody wants? He then printed a second version of the subscription offer, but with the middle option removed. The new votes were counted and, against all rational sense, the most popular and least popular options switched place!
The students initially chose the third option because, relative to the middle option (print-only for $125), $125 for both print and web looked like a fantastic deal. But without the ‘useless’ middle option, they realized that the low-priced first option was all that they really needed.
The reason this happened is because we use context as a reference point from which to frame our decisions. The reference point in the first offer (a perceived “great deal”) was different than in the second (a one-to-one price comparison of two similar options), and this had a significant impact on the students’ decisions.
The general idea here is that we actually don't know our preferences that well, which leaves us susceptible to contextual influencers like the useless middle choice above.
The Proof is in the Heatmaps
To fully understand this phenomenon, let’s look at the actual online behavior of visitors browsing a financial site that offers three different service plans:
By using a web analytics tool to capture the mouse movements, hovers and clicks of visitors to the page, we are able to observe some interesting behavior. Although the most popular choices are always Option A (free) and Option C (highest price), visitors devoted a considerable amount of attention to Option B.
Analyzed through traditional economic theory, Option B is useless and should be dropped from the site. However, people spend a great deal of time looking at Option B because it has psychological value. It is a reference point from which the other plans are viewed. If it is dropped, the majority of users will choose the free plan. The middle option is what drives people to choose Option C.
Why does this happen? Again, because of context. Had site visitors been offered only two choices -- a free basic plan or $18.99 complete plan -- the second option would likely have seemed very expensive and possibly unnecessary. But the presence of a second priced option creates the impression that the free option with its ‘basic services’ is inadequate for serious users. Thus, the choice becomes one between $13.99 for ‘extended services’ or $18.99 for ‘all the services.’ This difference in services sounds much more significant than the difference in price, so customers see more value in the higher-priced option. They perceive they’re getting more for their money— a better deal.
How You Can Benefit from the Way We Think
As demonstrated, we make decisions using relative thinking, but only when the framing of the decision triggers us to do so. Without a well-designed reference point, we are most likely to choose the least expensive option. Designing the appropriate reference point will automatically activate relative thinking and shift your customers from a low-cost product to a more lucrative one.
The most efficient way to activate the relative thinking process in order to emphasize one option over the other is to create exactly three options. When the costumer is asked to compare four options or more, the process becomes cognitively complicated; automatic relative thinking is based on simple mental shortcuts. The cognitive overload embedded in a four-way comparison (or more) turns the process from automatic to calculative and detail-oriented. You don’t want your customers to be in that mode when making a decision.
To persuade your customers to purchase the more expensive of two options, add a middle option that’s not much cheaper than the expensive one but contains significantly fewer features or services. By anchoring the price close to the expensive option, you will encourage your customers to think, “What the heck; for $5 more, I can get the best one they have.”
If your expensive plan doesn’t have enough features to distinguish it from a theoretical middle option, make some up! Again, the decision making process during relative thinking is automatic and heuristic. Your customers will focus on the quantity of features offered, rather than the quality. For example, if your company offers two types of editing services – (1) proofreading, and (2) proofreading + academic editing – create a third plan that also includes consulting services. It won’t cost you a thing, because all it means is that you will answer customers’ questions – something that you already do anyway!
Regardless of which service plan or product you would like to promote, if you don’t have a “gold” plan, create one immediately. Some customers will choose the most expensive plan no matter what, due to the illusion that the most expensive plan is always the best one. And other customers will now choose your (previously most expensive) ‘silver’ option because it seems like the rational decision by comparison.