Definition 

The preference for the middle option, or "compromise effect", describes a buyer's tendency to choose a middle product more often than the inherent utility would suggest.

Explanation

Buyers tend to be risk averse and avoid extreme options. They often choose the middle option which feels neither “too low” or “too high”. This “preference for the middle” is particularly strong when buyers feel a need to justify their purchases to an imaginary or real third party and when they are unclear about this third person’s preferences. The middle option is easiest justified as research and various experiments (see next page) show. 

This explains why companies in many industries have a “good-better-best” portfolio or create small, medium and large versions of their products.  Companies also use this behavioral tactic to nudge buyers towards a certain product, e.g., by introducing an expensive product which makes the others look cheaper.

An experiment conducted in 1989 presented a diverse set of products - ranging from TVs to mouthwash. Each one had a good-better-best portfolio with one middle product. On average, the middle products had a 17.5% larger market share than the rest of the portfolio.¹

In another experiment, two cameras were offered and choice shares were equal with 50% for each camera. After researchers introduced a third camera as an upscale option, the middle option increased its share by 7 percentage points to 57% while the lower-end option saw a decrease.²

¹Simonson, Itamar (1989), “Choice Based on Reasons: The Case of Attraction and Compromise Effects”, Journal of Consumer Research, 16 (2), pp. 158–174

²Simonson, Itamar and Amos Tversky (1992), “Choice in Context: Tradeoff Contrast and Extremeness Aversion”, Journal of Marketing Research, 29 (3), pp. 281-29

What to watch out for 

❌ Make sure it works in your context: When customers know exactly what they want or need, they are less likely to be influenced by this effect.

❌ Assure a balance with your goals: Leveraging the preference-for-the-middle effect can be detrimental to your lower and higher end products which might negatively impact your KPIs. 

❌ Use this tactic with care: A carefully calibrated product-portfolio architecture is key for maximizing your benefit. If you set an anchor too high, for instance, the portfolio appears expensive compared to competition.

Sources & further reading

Nudge: Improving Decisions about Health, Wealth, and Happiness by Richard H. Thaler & Cass R. Sunstein

 

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"Key Behavioral Pricing Effects"