November 27, 2015

Why Airbnb is in trouble from the ACCC...and what you can learn from them

November 27, 2015

Why Airbnb is in trouble from the ACCC...and what you can learn from them

Newsreel, Marketing Strategy

How many times have you started searching on the web for your perfect getaway and found an unbelievable price, only to be disappointed at the check out when other fees such as cleaning, admin, and credit card charges tripled the price?

Well that’s known as ‘Drip Pricing’. It attracts customers with low headline prices and adds additional costs throughout the checkout process.

Recently leading brands like Airbnb and eDreams have been called out by the ACCC – just like Jetstar and Virgin in the past, facing possible repercussions if these extra fees are not disclosed clearly. (Source: The Australian, Oct 2015)

So instead of deceiving customers with 'Drip Pricing', here are a few strategies that can drive growth without getting you in trouble:

 

 

#1 Decoy Pricing

Why Airbnb is in trouble from the ACCC...and what you can learn from them

Decoy Pricing creates an irrational price frame by adding or shifting the price of a product or service, resulting in creating a feeling that a customer has a ‘no brainer’ option (In the above image, the print and web subscription becomes a 'no brainer' option only when the print subscription or decoy is added). The goal is to increase the perception of the value received by the customer in contrast to other available options.

An example of shifting behaviour through the decoy-pricing model can be seen when purchasing both a digital and print subscriptions of the Economist:

Original pricing

Digital only: $59

Print and digital: $125

to

New Decoy Pricing (image above)

Digital only: $59

Print only (the decoy): $125

Print and web: $125

The addition of a decoy (print only) shifted subscriptions of print and web to from 34% to 86%. 

#2 Price Anchoring.

This strategy places standard options near premium products. You see this when you walk into a fancy clothing store. The first shirt you see is a $100 which makes the discount shirts at $60 look like a bargain. It creates a sense of value for the other products by anchoring the initial price in a customer's mind.

Another example, a 50-inch TV might cost $2,000 while a 48-inch may cost $600. You'd think the $600 TV is an absolute bargain... well think again.


Watch Dan Ariely below to hear a bit more on Decoy Pricing or head over to the Stump the Strategist video on our blog to explore some other pricing strategies.

 
 

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