Buyer Behavior: Aversion to extremes …

A couple of interesting analyses in the WaPo last week re: what folks are signing up for on the ObamaCare Exchanges.

Based on HHS data, the majority of sign-ups are for the mid-range Silver plans.

 

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That’s not surprising.

Here’s why …

In cognitive behavior terms, there’s a predictable buyer dynamic called “aversion to extremes”.

If buyers are offered only 2 choices (think, bronze and silver), they’ll tend to the lower priced item (i.e. more bronze sold than silver) … with an 80-20 split being pretty typical.

If a 3rd product choice is introduced (say, gold) at a higher price, the purchasing mix predictably changes … the formerly highest priced product (silver) typically becomes the majority of the purchases (i.e. more silver sold than bronze).

The change is largely driven by the mere introduction of the higher priced option (the gold).

  • Note: Often, marketers will offer a high priced model called a “decoy”.  They don’t expect to sell many of the decoys.  It’s just there create the high price cognitive “anchor”

Why does this happen?

It’s called aversion to extremes.

When offered 3 price points, buyers tend to shy away from the lowest price (too cheap? missing something?) and from the highest price (too expensive? features I don’t want?) … they settle for the safe middle priced item.

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A second analysis in the WaPo article presented an equally predictable result:

When somebody else is paying, there’s a strong tendency to to step-up to higher priced products – whether you need the extra bells & whistles or not.

So, if folks are getting tax payers to buy their plans for them, they’ll select the best plan that they can get (for “free”).

When the have to shell out their own dough, they tend to towards lower priced products.

Surprise, surprise, surprise.

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One Response to “Buyer Behavior: Aversion to extremes …”

  1. Los Says:

    The followup question is: does the second cheapest health plan also come with the highest mark-up (remember that the second cheapest bottle of wine is marked up the most)?

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