How You Can Increase Your AOV, LTV, and CR For your Product Pages, Leveraging The Decoy Effect

Marco Basile - The Subscription Offer Man

How Lola Can Increase Its LTV By Up To 145%

Lola offers a monthly subscription service for feminine hygiene products, and its commitment to 100% cotton tampons, whereas others use other materials that may contain chemicals.

For their organic cleansing wipes, they offer three subscription options:

  • 1-month delivery for $10/box
  • 3-month delivery for $9.50/box
  • 6-month delivery for $9/box 

There are two big issues with this structure:

There’s no preferred option for the customer to choose. In other words, there’s no decoy effect at all.
There’s no incentive for people to subscribe, except a common discount.

Let’s focus on the first one, as the second one is outside the scope of this article.

There’s just a 50-cent difference among a 1-month, 3-month, or 6-month delivery option, and it’s not enough to help the user make the best choice. Let’s try with another pricing structure for Lola:

  • $11.50 for a one-time purchase
  • $11.00 for one-month delivery
  • $9.00 for three-month delivery
  • $8.50 for six-month delivery

Now, due to the relatively big price difference between the one-month delivery and 3/6-month delivery, people are drawn to the latest ones.

Given that few women may want to invest $51 for the 6-month delivery, more will be drawn to the three-month option.

In this way, if we compare it to the one-time purchase and the one-month delivery, there will be a 134% and 145% LTV increase, respectively.

Quick note: the pricing structure has changed from the last time I went onto their website and it’s better than the one we analyzed. Nonetheless, I felt it was a great real-life application to learn from.

How Harry's Can Increase Its AOV By Up to 91%

Harry's is a shaving DTC brand disposable razors, shaving creams, and other products made for men's body and hair care.

The pricing structure of their shave gel product is quite confusing. You pay:

  • $4 for a bottle
  • $8 for two bottles
  • $11.49 for three bottles

Would you feel drawn to any particular offer?

Not, because that would only be based on your real need and not the psychological effect you're not aware of.

Instead, here's how we can change the pricing structure. The user pays:

  • $5.50 for a bottle
  • $9 for two bottles $4.50/ea
  • $10.5 for three bottles $3.50/ea

As you can see, now the difference between the first and second options is rather big compared to the second and third options ($3.50 VS $1.50).

In this way, users are drawn toward either the second or the third option, since the value/price ratio is more favorable. Here's how the potential AOV increase looks like:

  • A 64% increase over the first option if the user chooses to buy two bottles instead of one.
  • A 91% increase over the first option if the user chooses to buy three bottles instead of one.

On average, this is a 77.5% increase in AOV for Harry's.

Last but not least, I suggest showing the bundle prices instead of the unique price, so that we can leverage the Decoy effect at its best.

How Onnit Can Entirely Change Its Pricing Structure To Implement The Decoy Effect And Potentially Increase Its LTV By 148%

Despite making more than $30M in yearly revenue, The product page of the Alpha Brain product by Onnit is not optimized at all. You can see the gif below:

First, there are too many choices. You need to choose among:

  • The product type
  • 30 or 90 capsules
  • Subscription or a one-time purchase
  • Delivery between 15, 30, 45, 60, 90 days
  • Number of items

It's probably harder to figure out how you'd like to buy than deciphering the Rosetta stone. In other words, the user is cognitively overloaded and she may get too anxious trying to figure out which is the best choice.

Before applying the Decoy effect, let's remove the product type and the number of items:

  • We keep the product type for two different pages, displaying two different products on the product listing. For this example, we'll analyze the 30ct option.
  • We give the opportunity to choose the number of items only on the checkout page.

Phew, two fewer choices for our brain.

Now, we can either choose to use a structure similar to Lola's above or to just leverage the subscriptions. Given the strong popularity of Onnit's brand in the US, the user won't be concerned about choosing to go just with a subscription. Therefore, we get rid of the one-time purchase option.

What's left is the subscription option, with five different options: 15, 30, 45, 60, and 90 days.
For the decoy effect to work, we only need three.

For this reason, I'll choose the most common: 30, 60, and 90 days. Let's review the prices of each option with a GIF:

As you can see, there's no real pricing difference between the different options. Here's what we can do price-wise:

  • We keep $34.95 for the 90-day delivery
  • We use $29.95 for the 60-day delivery
  • We use $28.95 for the 30-day delivery + free shipping

If you were to do the same thing the Economist magazine we saw at the beginning did, you needed to choose the same price for the 60-day and the 30-day delivery. I decided to not do it because it may seem too obvious, as today's consumers are pretty smart.

There's something strange about this structure, isn't it?

I changed the order of the deliveries, since it's more convenient for Onnit that the customer chooses to stick to a 30-day delivery instead of a 90-day one.

Moreover, due to an effect called Hyperbolic discounting, we discount the value of the rewards the longer we have to wait. In other words, this strengthens the value of the 30day delivery because it's immediate and more convenient.

It's difficult to figure out how much the LTV is likely to increase, but if you were to compare two users:

  • One goes for a 30-day delivery, paying $28.95 every month, getting free shipping
  • The other goes for a 90-day delivery, paying $34.95 every three months and no free shipping

Given that both stick for at least one year:

  • The first client's LTV is gonna be $28.95 12, therefore $34740 every year
  • The second client's LTV is gonna be $34.95*4, therefore $139.80 every year

It's not guaranteed this will happen, but if it does, the first client's LTV is 148% higher than the second LTV.

Summary

You've made it. That was the last example. See how easy it can be to increase your metrics by leveraging just one psychological effect?

Want me to help you apply this principle plus other forty consumer psychology principles to increase conversion rate, average order value, and lifetime value for your brand? Then click the button below to see if you're a good fit:

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"We then experienced a 173% increase in conversion rate, and something similar happened for revenue."

Chris Manderino, Founder of Lyfe Fuel

ABOUT THE AUTHOR

Known in most circles as The Subscription Offer Man, Marco grew up as an introvert, developing a natural intuition towards what makes people tick. That's how he developed a passion for psychology.

After graduating from a scientific high school, he taught Math and Physics for three years as a private tutor.

Improving your customer experience is where psychology and Math intersect, and that's why he's able to get you unheard-of results.

He particularly loves talking about quantum physics, space colonization, and human consciousness.

You can get in touch with him on LinkedIn, Twitter, or via email.