Nudging Customers to Choose the Right Version

[tweetmeme source="pricingright"]My favorite online survey platform is SurveyGizmo. Its pricing page shows five four different versions with special formatting for “Pro” version that tells us it is the most popular version. (Since I last wrote this article, SurveyGizmo has done an amazing job of re-designing their pricing page, presenting just 4 vs. 5 versions.)

Another example is BaseCamp, its pricing page shows four versions and  tells us its Plus version is the most popular. Are these examples of versioning strategy? Why will these marketers draw our attention to one specific version if they are offering us choices that we are supposed to self-select?
Let me start with a few definitions:

• Versioning strategy is finding different customer segments and delivering different versions designed to appeal to each. For example there are customers who prefer a Acura and those that are happy with Civic.  Strategy means making choices. Since a marketer has only limited resources they have to make a choice which segments they can serve and what versions should they deliver to maximize profit.
• Versioning tactics is second level of optimization, fine tuning if you will, after the strategy is chosen. For example different trim levels within Civic. This comes from sub-segmentation, recognizing there are still variances in customer types within a segment.  Versioning tactics help extract additional profit  from minor product variations. No significant resource commitments are needed.
• Self Selection is offering customers multiple versions at different price points so they self select. When marketers cannot clearly tell which customer is which, they simply present they version with the assumption customers pick the right one. Self selection works when customers know (to an extent) the value they get from each version and whether that matches the price they are willing to pay for it. A rational customer will pick the one that leaves them “consumer surplus“.
• Nudging is sending signals to the customer and applying many of consumer behavior methods to nudge them to choose the one the marketer wants. Nudging is important and effective when the customer does not know the value they get and whether or not the price they pay matches the value they get. When nudging is applied, usually there are three versions but these are not designed based on segmentation (i.e., not versioning strategy). These additional versions have just one role – help sell the real version. Despite multiple versions the marketer expects to sell only one which she highlights to draw customer’s attention to it.

In case of information goods (and sometimes for experience goods like Wine) customers do not know the value and do not know what price to pay. Customers must first understand what they are buying before they can tell what value they get (DeLong).  In such cases, when the customer is presented with just one version they do not know whether or not to buy it because there is no value information. Customers decide value  and price to pay by comparing  options so it helps to present them with more than one version.  How many versions? In his 1997 paper on versioning, Hal Varian, tells us  presenting three versions are better than two versions. The reason – extremeness aversion.  Varian labels three versions as Goldilocks pricing.

Unlike the tall, grande, venti (where customer can see value) it is not enough to depend on extremeness aversion to let the customers pick the “Pro” or the “Plus” version. Customers need to be nudged. The nudge could be either highlighting a version or  using conformity principle to tell a prospective customer that most customers bought a certain version. Sometime all such influence methods are applied.

What we are seeing with SurveyGizmo, BaseCamp  and many other similar services telling us the “Most Popular” version is Nudging!

Don’t  their Enterprise Edition and Dedicated version count as versioning strategy since they are targeting high end large enterprises?  It is correct that these are products that is designed for a different segment but I am not certain whether the enterprise segment makes its buying decisions through a website form like small businesses and individual customers do. I bet they have account managers to target the Enterprise segment.

Does your business practice Strategic versioining or  Nudging with Goldilocks Pricing?