The behavioural science behind Netflix pricing and the Facebook loading screen

behavioural science Facebook loading screen

I thought the above example was pretty interesting. And this too, about Netflix pricing:

You don’t understand prices. You don’t buy things based on anything resembling “logic.” You buy things based on, well, something else— mental “shortcuts.” And Netflix wants to hack your mental shortcuts.

One way companies use prices to trick us is to offer cheapo, inferior goods to get us hooked on a product that we’ll eventually spend more on. Time Warner Cable, for example, experimented with an “Essentials” package that offered cable without the most popular channels at a discount, expecting (and, as I’ve been told, often discovering) that customers would upgrade to full cable when they realized how much they love TV.  In a way, Netflix is already doing this: In December, it introduced a $6.99 plan ($1 discount) that allows streaming to one screen only.

The more sophisticated strategy isn’t to offer two prices, but three. In Hasting’s words: “good,” “better,” and “best” price tiering. Why three? Because of the magic of the Goldilocks effect in pricing.

It reminds me of a great talk I saw some time ago about the way The Economist packages up subscriptions, as explained by Dan Ariely here.

One thought on “The behavioural science behind Netflix pricing and the Facebook loading screen

  1. The pricing stuff is very basic sales… it’s not that ingenious. Read more about price anchoring to find more in depth knowledge. People will often go for the middle one, just because it feels like a good compromise. Often the lower priced ones are purely decoys. In Netflix’s case, it also has another reason: to see of Amazon which is going in at a cheaper price point.

    The Facebook thing is great though. Love it.

    Incidentally if you want more behavioural stuff, see how the WordPress comments section penalises you for having an email address registered. It wants a password, which I’ve forgotten. Solution: to just put in a fake email address.

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