In an ever reducing market it’s important to nudge your profits up where-ever possible. Most MSP businesses are small scale businesses with a client base that doesn’t change much month to month. So it’s even more important to get the most from every new client that comes through your door and decoy marketing might give you that small nudge in profits that you need.
Now, we all know that the MSP market is pretty mature, and all of you will most likely have a per-machine type of tariff. What we are going to look at is how a few small changes to your tariffs can push people in to naturally wanting to focus on your most profitable options.
What is decoy marketing?
Decoy marketing, also called the decoy effect, is the practice of giving an end user 3 or more options, where one option is priced higher than it’s benefits imply it should be, so that the user chooses a higher value option. This sounds complex, but it really isn’t, though you might not know that if you read the Wikipedia description…
In marketing, the decoy effect (or asymmetric dominance effect) is the phenomenon whereby consumers will tend to have a specific change in preference between two options when also presented with a third option that is asymmetrically dominated. Wikipedia, https://en.wikipedia.org/wiki/Decoy_effect
In other words, you provide several pricing options to the user, and try to tempt them to go for the most expensive option by way of making the other options look less appealing.
Clear? Probably not right now. Let’s look at an example instead. The following prices are taken from an old copy of The Economist.
So looking at the table you can see that you would be mad to go for the print only subscription of The Economist when you can get online access and a hard copy for just $5 more. The print only subscription is a decoy, put there to make the most expensive option look like a better deal.
Let’s look at that again, but without the decoy subscription in there.
You can see now that the difference between the two prices is quite noticeable. Presented with that pricing table it feels more likely that you would go for the cheaper web-only option than the print-only option. By inserting a third option with more benefits but with only a slightly higher cost, we can nudge the user to spend that little bit more.
That, my friend, is decoy marketing in effect. If you want to know more about such techniques then Dan Ariely writes about just this and other effects in his book Predictably Irrational.
How can we use Decoy Marketing?
It’s all well-and-good upselling people who buy magazine subscriptions or MP3 players, but how can we put decoy marketing to use within the wonderful world of the MSP?
Let’s return to our examples, but this time lets use a more real world situation, the remote/onsite tariff of a small local MSP.
This looks fairly good, and is probably a very realistic example. You can see that each is priced fairly but there’s a reasonable gap between the two and we want to nudge people in to looking at the higher tariff.
Lets add a middle option. We’ll add a Standard option that is somewhere between the two.
You can see we’ve added an option that provides more services than the basic option but is priced similarly to the Advanced option. In this case, the up-sell is that both the Standard and Advanced options are offering onsite support, but for an extra few dollars the Advanced will give you next day support and rapid response in the event of a critical issue. In this way it makes our highest option seem more reasonable, and clearly shows that the increase in price is due to the labour requirements of onsite support.
Take some time and have a look at your tariff, and the number of customers using each option. Could you tweak the pricing to get a 10% movement up the scale? What about 20%?
I’d love to know your thoughts so use the comments and get in touch.