The Paradox of Choice

Kristen Berman co-founded Irrational Labs, a behavioral product design company, with Dan Ariely in 2013. Irrational Labs helps companies and nonprofits understand and leverage behavioral economics to increase the health, wealth and happiness of their users.

In this episode, Kristen explores the intricacies of pricing strategies, emphasizing the importance of understanding behavioral economics to influence consumer decisions effectively. She discusses how techniques like the decoy effect, anchoring, and the power of price endings (like 99 cents) can drive customer behavior. Additionally, she highlights the challenges of pricing revolutionary products due to the lack of reference points and the creative approaches needed to establish them in the market.

Why you have to check out today’s podcast:

• Deep dive into pricing strategies like the Good-Better-Best model, the Decoy Effect, and the psychology behind price ending to help you understand how to make pricing decisions that drive customer behaviors and increase sales.
• Find out valuable perspectives on how human psychology influences purchasing decisions which is essential for anyone looking to optimize their pricing or marketing strategies.
• Discover practical advice and real-world examples to see how you can apply these concepts to your own business.

"It's all relative. So, what are customers using as a reference point? If it's off your product site, then you need to help them create a new reference point within your product site."

- Kristen Berman

Topics Covered:

01:14 - Sharing how she transitioned into behavioral economics from her role as a product manager at Intuit

03:42 - How behavioral science tie to pricing and product

06:10 - An example of how behavioral economics influence product decisions

08:50 - Explaining the concept of the "paradox of choice"

11:35 - Turning the path of least resistance into the preferred choice

14:30 - Simplifying decision-making for customers with the concept of "good, better, best" product offerings

16:42 - Explaining the decoy effect and how it influences consumer decision-making

19:09 - The reason behind the presentation of pricing options in the context of behavioral economics

22:43 - The concept of framing in sales in the context of product features and the importance of trials in subscription-based models

25:25 - How people often rely on heuristics, or mental shortcuts, when making decisions about prices

28:56 - Kristen's best pricing advice

29:28 - Various sources of reference points

31:19 - The challenge of pricing revolutionary products due to the lack of existing reference points

Key Takeaways:

"People don't come in with an understanding of the exact thing that they want to purchase at the exact moment. And so, our job is to help them understand value, and choice helps people understand value." - Kristen Berman

"We're using the heuristics on how big the number is to make a lot of fairness decisions." - Kristen Berman

"We are relative creatures. We have reference points and we use our reference points to understand value. And so, it's not just the price, it's the reference point that we're using." - Kristen Berman

People/Resources Mentioned:

• Intuit: https://quickbooks.intuit.com/
• TikTok: https://www.tiktok.com
• Airbnb: https://www.airbnb.com
• Dan Ariely: https://danariely.com/all-about-dan/
• One Medical: https://www.onemedical.com
• Steve Jobs: https://en.wikipedia.org/wiki/Steve_Jobs
• Apple: https://www.apple.com/
• YouTube: https://www.youtube.com
• Netflix: https://www.netflix.com/
• Study: https://play.google.com/store/apps/details?id=com.thesoundagency.study&hl=en_ZA&pli=1Shopify: https://www.shopify.com/ph

Connect with Kristen Berman:

• LinkedIn: https://www.linkedin.com/in/kristenberman/

Connect with Mark Stiving:

• LinkedIn: https://www.linkedin.com/in/stiving/
• Email: mark@impactpricing.com