Pricing For The Diminishing Marginal Utility Of BBQ

The menu from this BBQ restaurant shows they understand the diminishing marginal utility of their product and price to get customers to buy more anyway.

Pricing For The Diminishing Marginal Utility Of BBQ

The menu shows that a half point of barbecued meat costs $12.49, or about $6.25 for each quarter pound.

But as the next line shows an additional quarter pound is actually steeply discounted, costing just $2.00. This is a discount of almost 70%.

Why such a big discount? Because the restaurant recognizes the diminishing marginal utility of their product. All BBQ is good, but the first few bites are the best. For most people half a pound is enough, and an additional quarter pound would provide much less utility (in this case pleasure). In fact for many people it would push a good meal into "uncomfortably full" territory.

By offering a big discount on the extra quarter pound the restaurant gets people to change their behavior and buy more than they would otherwise. They get additional profit that is smaller than if they did not offer a discount, but if they didn't offer the discount they simply would not sell the extra quarter pound. Smaller extra profit is better than no extra profit.

Too often florists miss this. They don't accept that 24 roses don't offer twice the utility (pleasure) as 12 roses, and the don't discount the extra dozen roses accordingly.

This makes upselling very difficult. The barbecue restaurant doesn't waste their time pushing "50% more meat for 50% more money", but the florists that do try and upsell roses often push an offer that equates too "twice as many roses for twice as much money". It's not a compelling offer, and it won't change behavior.

As a result florists don't get the extra profit that could come with a properly priced upsell offer.


Diminishing Marginal Utility Value-Based Pricing