Pricing Compression: The Psychology of Choice

What does the psychology of choice have to do with cannabis pricing compression?

Every day, the average adult makes 35,000+ decisions. Everything from your clothes to meals and what cannabis products to purchase fill a day. 

Humans like to believe that we want as much choice as possible and that we are free and capable of deciding between hundreds of options for any one decision. However, research shows that we stumble in decision-making when too many choices are presented. 

Psychologist Barry Schwartz coined the phrase “Paradox of Choice” to describe their consistent findings that increased choice - almost always leads to greater anxiety, indecision, paralysis, and dissatisfaction.

Let’s use two examples of how this plays out in cannabis retail. 

1. Good, Better Best 

- when given 3-tier options, people tend to focus on the mid-range choice

- this is known as the ‘Compromise Effect’ ²

Compromise = $10 / $20 / $30 options ($20 will sell best)

2. Good, Less Best, and Most Best 

- people gravitate toward options that are similar to another option yet slightly superior. 

- this is known as the ‘Attraction Effect’ 

Attraction = $10 / $28 / $30 options ($30 has a tendency to sell best)

So what can you do?

Retailers

1. Keep options presented to customers in groupings of 3 to 5 (ie 3 different sativa preroll options, curated to guide customers towards the one that you want to sell the most of)
2. Break up menus to present options with attention to how the price shows up, so your customer can analyze the features and benefits beyond price

Brands

1. Leverage choice psychology when presenting your product information- buy sheets or your own assortment. 
2. Provide retailers and wholesalers product bios to help a customer justify purchases. Keep it concise and relevant to your customer.

Getting customers out of buying only the cheapest products is a team effort.