Decoded: How Nespresso Uses Price Relativity to Make Their Customers Buy

Learn how Nespresso uses heuristics and cognitive biases to make their capsules worth buying.

How do you know, if a product is worth the price? Price is subjective, and Nespresso knows it. Learn how they managed to sell coffee pods at a price equivalent to €45 for a regular bag of coffee, and why their customers still considered it a great deal.

In this article, you’ll discover:

  • How your customers make sense of whether a product is good value or not;
  • How Nespresso charges customers a price per pod that would be equivalent to €45 for a regular bag of coffee and the customers still consider it a good deal; and 
  • How to change the decision-making context to make your product look like a clear choice.
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Have you ever thought that your offer is a killer deal and will sell out faster than you can say behavioral economics, but it just doesn’t happen? Consumer behavior is often very hard to predict because the price that your customers perceive is not as objective as you might think. 

Imagine you are in the market for a new car. You see that your neighbor just bought a new Ford, so you decide to share your purchase intention with him. Maybe he’ll give you some valuable advice. You tell him you love the look of the BMW Series 5 and that the features seem awesome as well, so it’s very tempting for you. 

“Oh yeah, a new car is a treat man, I just bought this Ford. Just for €23,000, but look at it, I absolutely love it!”

23,000? The BMW you’re considering costs €36,000. The neighbor has a similar salary to you, so perhaps you’re aiming too high. Maybe you should look for something else. 

A week later, you’re sitting at your desk trying to do some work, when all of a sudden you can’t believe what you’re seeing – a colleague in the same job as you has just arrived in a brand-new BMW Series 5. 

“You know, I considered one as well but it seemed a bit too pricey.”

“Pricey? I don’t know. My neighbor just bought a Bentley for 140k. This is like peanuts compared to that, so I thought, why not?”

The exact same price perceived in a different context can look very different. As you’ve heard from us multiple times before, context is a marketing superweapon you shouldn’t overlook.

And there you go. The exact same price perceived in a different context can look very different. As you’ve heard from us multiple times before, context is a marketing superweapon you shouldn’t overlook. 

Just so you know, this is not just a made-up example. This is exactly what Richard Shotton, author of The Choice Factory and founder of Astroten Consultancy, found in his research. They told one group of consumers that a Bentley Flying Spur cost £118,651 and a BMW Series 5 cost £30,265. In this case, 47% of consumers thought the BMW was good or very good value.

The second group was asked the same question but with the Bentley swapped for a Ford Mondeo priced at £20,495. In this scenario, only 33% of people thought the BMW was good value.

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When making sense of price, customers compare similar products

Imagine you were offered a €3.50 cup of coffee. Is it a good price or not? You don’t know right away; you need some reference point. What you intuitively do, is you remember how much you usually pay for a cup of coffee, and then you compare the two prices to see if it’s a better deal or not.

Whenever customers consider your product, they don’t perceive its price in a vacuum. They need to make sense of whether it’s a good deal or not, so they also compare the price with the price of a similar product in the same category.

Whenever customers consider a product, they also compare the price with the price of a similar product to decide if it is a good deal or not.

That price then serves as an anchor - it sets their expectations about what the price should be

Logically, different comparisons can result in a different perception of any price. If the anchor is low, customers expect the price of the product to be similarly low and higher prices won’t make them very happy. However, if your product is cheaper than the anchor, it will seem like great value. 

So, what you need to do is to make your customers compare your product with something pricier so that your product seems like a no-brainer. Exactly like Nespresso does.

How Nespresso sells you €45 bags of coffee

Sticking with the coffee theme, imagine you’re buying a 474g (17oz) bag of coffee. What’s the highest price you would be willing to spend on it? €10? €20? €45?

€45 for a bag of coffee might sound ridiculous but that’s the same per gram price as a Nespresso pod. Few of us would think it was okay to spend such a fortune on a bag of coffee. But the Nespresso capsules? We happily buy those. Strange, right?

The brilliant thing Nespresso came up with was to sell their coffee in pods, which provide a cup’s worth of coffee. Once we think of a cup of coffee, the natural comparison is not to compare it to a bag of coffee but to the cost of a cup at Starbucks. Suddenly 50 cents for a Nespresso pod looks remarkably good value compared to €3,50 for an Americano at Starbucks.

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But if you did your calculations, you would have discovered that 50 cents for a pod and €45 for a bag of coffee is the same price per gram. Yet one feels expensive and the other great value.

If you want to make your price feel like a good deal, think about what the price of your product is being compared to. Explore what price serves as a reference point to your product. 

Then without even changing the price, find a way to make it seem more, ehm, digestible in comparison. Just like Nespresso. 

Consider the environment the product is placed in

To change what your customers are comparing your product to, you can either change the product (as Nespresso did) or change the environment of the product. 

There was a time when black pearls were considered inferior to white ones. Initial efforts to sell them for a high price fell flat on their face. What eventually helped was something a bit counterintuitive - displaying them next to diamonds with equally high price tags

By doing so, not only was the environment changed, but also the decision-making context. All of a sudden, the black pearls had a different reference point- diamonds - which resulted in an increase of subjective value. If they’re displayed right next to diamonds, they probably cost as much, right? A strand of black pearls could then easily sell for over a hundred thousand dollars.

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In his online masterclass, Rory Sutherland mentions multiple examples of how product placement can completely change how customers perceive its price. The first one is the example of well-known car manufacturers Rolls-Royce and Maserati. 

Both of these are very luxurious brands, and the representatives know that even within this category there are not many pricier cars to choose from. Comparing Rolls-Royce to any other car that comes to the customer’s mind will result in not much favor for Rolls-Royce.

So, these car manufacturers came up with an interesting idea of how to change the perception of their price. Instead of selling the cars at car shows, where they would look expensive as hell, they sell them at yacht and plane shows. Suddenly, alongside the gigantic luxurious vessels, the cars are more of an impulse buy.

Always think of the reference point your customers will compare the price of your product to.

Another example is the yogurt company Danone, who came up with a fantastic yogurt milk. After rationally considering the situation, it made sense to put the yogurt in the milk aisle, the highest traffic area in the supermarket. The more people who see it, the more people will buy it, right?

The problem was it was about twice as expensive as regular milk. How would you react if you were about to buy milk and when scanning the shelf, you saw a drink twice as pricey? It certainly wouldn’t be a natural choice, would it?

Luckily, someone realized this and suggested putting the product in the premium yogurt section instead. Suddenly, it didn’t look like expensive milk, but rather a well-priced yogurt.

The bottom line is, always think of the reference point your customers will compare the price of your product to. What is the first thing that comes to customers’ minds when they try to make sense of your price? How can you change the context so your product will seem less expensive?

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Key takeaways: 

  • Price is not objective. People don’t know if something is a good price or not unless they compare it with a similar product.
  • The price that customers compare your product to sets the expectations about your product. If your product ends up as cheaper, customers will consider it good value.
  • To make your product seem like a no-brainer, you need to make your customers compare it to a more expensive item. You can do that by changing the product to fit the more expensive category, or by changing the environment it’s displayed in.