Understanding the power of the Goldilocks Effect

I have a passion for design patterns. I like to understand the reasons why certain patterns work and dislike using conventions without knowing why they have become successful.

Recently I’ve found myself interested in the psychology of persuasion and the ways in which certain techniques have infiltrated the web. One such technique is the “Goldilocks Effect”. I’ve been aware of it for a while but had only ever thought of it as just another design pattern and hadn’t necessarily thought to understand the psychology behind it.

What is the Goldilocks Effect?

The term ‘goldilocks effect’ derives from the children’s story “Goldilocks and the Three Bears”. In the story Goldilocks decides, amongst other things, to eat one of three bowls of porridge; the first being too hot, the next too cold, but the final one she picks for being “just right”.

This, in a nutshell, is what the term goldilocks effect or ‘goldilocks pricing’ refers to. It is used to describe the practice of providing a premium as well as a budget option alongside the regularly priced product to make the standard option seem more appealing. A good example of this is the basic pricing structure adopted by most airlines. They encourage customers to see business class as good value by offering higher priced first class and economy options alongside it. A more everyday example can be seen in all mainstream coffee shops where the options range from small (tall) to large (venti), with regular (grande) in-between.  The goal of this type of pricing  is to push people who might usually buy the cheapest into buying a more expensive option.

Media Temple

“Third-class railway carriages in Victorian England are said to have been built without windows, not so much to punish third-class customers (for which there was no economic incentive), as to motivate those who could afford second-class seats to pay for them instead of taking the cheaper option.” Wikipedia

This technique for encouraging a more favourable transaction exploits our psychological aversion to extremes (a type of cognitive bias). Basically you can manipulate people into choosing the option that yields the greatest profit by providing them with three options (e.g. small, medium, large) as long as the item you wish to sell the most of is centered within the range.

Interestingly some economists have argued that the goldilocks effect constitutes a form of ‘pricing discrimination’ where premium pricing to encourage people to upgrade their purchases leads to providers intentionally worsening the quality of their ‘basic’ products to fit the model.

Odeon set 3 options across all audience types

I witnessed the goldilocks effect in action last year when user testing a travel insurance website. Following the quote process the participants where presented with 3 options, and even though most of them had mentioned price as a key factor in their decision making when purchasing insurance the vast majority commented that, even though there was very little difference between the products, they were more likely to purchase standard or premium over the cheapest option as they felt that by doing so they would be “even more insured”. Interestingly some users went as far as to show distrust, not of the brand, but of the lesser option.

Three is the magic number

Although in the children’s story Goldilocks is confronted by three options the pricing technique doesn’t necessarily have to be limited to that number. It does, however, make sense to limit the options as there’s less chance of overwhelming the customer with choice while also providing just enough for the technique to achieve its desired result.

It is possible to offer too much choice

Goldilocks and the four bears

While looking for examples I found a couple of instances were four products were shown. Rather than just show each option equally alongside the next, one of the central items would be highlighted as the ideal or ‘most popular’ choice. By visually separating out one of the central options they reduce the chance of choice paralysis. I accept that choosing from only four options is not exactly excessive but I do believe it has had enough of an effect for the companies to feel it necessary to highlight one.

Basecamp, a good example of exceeding the ‘magic number’

How to use the Goldilocks Effect successfully

So how can you utilise our natural aversion to extremes to encourage a transaction? I don’t consider myself an expert in this but I thought I’d share some of the ways I think you can use the goldilocks effect.

  1. Limit the number of options – ideally keep it limited to 3, although more can clearly work, too many could cause choice paralysis.
  2. Clearly show the comparison between each product – make the users choice clear by placing each option side by side
  3. Highlight the similarities and differences between the features and benefits – make sure the differences between each option is clearly displayed; what are the features or benefits? How is the higher price justified?
  4. Ensure product labels follow a consistent theme – SurveyMonkey for example use basic, pro and unlimited. Getsignoff uses audience types; freelancer, team or agency. With Getsignoff there is in-fact a forth option (free) but they choose not to place this alongside the paid for services.
  5. Use social proof to support the sell – as shown in the Basecamp example above highlight which option is the ‘most popular’ with your customers. By emphasising the choice made by the majority of people it reinforces that the middle option is the best, if everyone else is choosing it, it must be right.

I hope you’ve found this introduction useful. If you’d like to see more examples of the goldilocks effect in action I’ve put together a collection which I’ll be updating so If you know of any other examples please feel free to share them.

Update 27/10/2010

I’ve put together a collection of examples of the goldilocks pricing pattern on UI-Patterns.com so please check it out.

16 comments Write a comment

  1. A related concept that you may find interesting is the Decoy Effect. It can be considerably more powerful than the Goldilocks effect you describe here in creating preference for a “middle” choice over a bottom choice.

    Wikipedia is a good place to start: http://en.wikipedia.org/wiki/Decoy_effect

    If the game theory terms asymmetric and strict dominance, etc., are daunting, just walk through the example. I think it is clear on its own.

  2. Very interesting stuff, although I’m not convinced that you have to have only 3 options. It would be interesting if we could convince 37signals to run a test on Basecamp to see if it increases sales if they take away one option :)

    The psychology behind this is also covered by Dan Ariely in his book “Predictably Irrational” – very good read. His blog is at http://danariely.com/

  3. A very interesting and worthwhile read as always! I cannot believe I have never noticed this technique before; clearly I have much to learn!

    Thanks for another great post Paul :)

    Jake

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  6. Nice post and particularly relevant where consumers are locked into or dedicated to one seller/supplier. It all gets a bit more confusing when (as if often the case) consumers are not just making their decision based on one seller but are looking at multiple suppliers/sellers.

    Take your insurance provider example. I’m not sure how your study was structured but I know from some research I did around buying insurance online that what people often do is go to one site to get an idea of the cost and then check out other providers. This is where your point about “Highlight the similarities and differences between the features and benefits – make sure the differences between each option is clearly displayed; what are the features or benefits? How is the higher price justified?” can be even more important.

  7. Thanks for the feedback, guys.

    I know where you’re coming from Blake, and I agree that decisions people make are a little more complex than I allude to within this post. The study I carried out purely looked at the experience of using the clients process and not wider behaviours. As you say there is added complexity with people comparing not only between products within a range but between different brands.

    I put this post together simply to look at the way we try to influence purchase behaviour within a UI but I take your point on board. Thanks again for the feedback, it’s really appreciated.

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      • Hi Kimberley, thanks for the comment and the compliment!

        It’s funny that you mention KickStarter as I’ve recently backed my first campaign. I agree with you that the pricing tiers are a little confusing and in some instances I’d argue that it borders on choice paralysis for me. Although I’ve just backed my first project, I’ve thought about it on several previous occasions but on looking into the funding options, by the time I’ve got to the point of selecting the one I think is right, I’ve had second thoughts.

        My first thought is that the proposition is unique, and strong, enough for the majority of people to push beyond the initial discomfort of the multiple choices, that in some cases differ only very slightly. I’d be interested to see if KickStarter have done any analysis into the optimum number of funding options and tried any alternative layouts out. I don’t know enough about KickStarter to really comment on it, but I wonder if limiting the number of funding options and providing the ability to highlight a ‘preferred’ or ‘best value’ option would prove even more successful.

        Thanks again for commenting, I might look into this further. I’d be interested to hear more about what you think of it.

  12. Thanks , I’ve just been searching for info about this subject for a long time and yours is the best I’ve found out so far.

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