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How to get your proposals to shout 'VALUE FOR MONEY'!!!

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When the kitchen retail store Williams-Sonoma first introduced a bread-making machine, sales were disappointing. At first they thought it was because there was no real demand for such a gizmo (who really needs to go through the hassle of baking their own bread? Why not just buy the ready-baked stuff in the supermarket?) but it turned out people couldn't identify whether the selling price of $275 was good value or not, as they had nothing to compare it with.

Their response was to introduce a new model which was bigger but also significantly more expensive (about 50% more). As soon as people had two models to choose between, the purchasing decision was no longer made in a vacuum, and sales of the cheaper model nearly doubled.

The human brain very rarely values anything in absolute terms. We don't have an innate mechanism for telling us whether something is good or bad value. So instead, we tend to compare something against something else, and determine its value in that way.

For example, if I was to tell you I was thinking about buying a four bedroom house in a suburb of city X for $450,000, and wanted your opinion as to whether it was a good buy, you'd probably be unable to help me unless you were intimately acquainted with the real estate prices in that city. Because to answer my question, you'd need to compare the price tag with the 'going rate' for houses of that size in that city.

In other words, you'd make a comparison. Because when valuing things, a key factor is RELATIVITY.

When rookie salespeople are being taught how to close, one of the simplest techniques they are taught is the 'Alternate Close'. Put simply, in a situation where she wants to sell one unit, this is "Would you like to buy two, or will one be enough?"

So when people are given two choices, they will often compromise and choose the least expensive option, because they believe they are getting better value for money. No great surprise . . . but it does teach us we should always provide two options to our audience to enable them to appreciate the 'value' we are offering.

But . . . when a third option is introduced that is more expensive than the other two, the 'compromise' choice usually shifts from the 'economy'-priced product to the middle one. Take this experiment as an example . . .

100 students at MIT's Sloan School of Management were given 2 options for subscriptions to The Economist magazine - an online only option for $59 and an online and print option for $125. The majority (84%) chose the cheaper option, with only 16% choosing the more expensive.

Then a third option was introduced, offering a print-only subscription, also for $125. Now bear in mind that this was not technically a more expensive option, in that it cost the same as the more expensive of the first two, but in the eyes of the students it was perceived as the most expensive of the three in that it offered less than the print/online option.

Now logic say this introduction should have had no effect whatever on the students' choices. Obviously, nobody would choose it, as it blatantly offered the worst value (why would anyone choose print-only for $125 when they could get print and online for exactly the same price?) So the choice would still effectively be between the first 2 options. What happened is shown below:

2 Options
3 Options
Print only, $125
Print AND online, $125
Online only, $59

When a third, 'more expensive' option was introduced, over TWO-THIRDS of the students now chose the print and online option. That's an increase of over 400% Why? Because option 3 suddenly made the print/online option seem like great value. The Economist's rvenue would have increased by 49%!

So . . . if you're trying to get approval to spend $10,000, don't just ask for that amount. That way it becomes a yes/no issue, and you might get a 'no'! Instead, give your audience one or two other options. That way it becomes a 'which option should we approve' issue.

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