This tactic is generally used by sellers to disaggregate a deal and upsell elements of cost. This provides choice, which many cultures like. One is presented with a bare-bones offering at a low price, or the “package deal” with many additional parts at a higher price, some elements of which we want, others we do not. This can be insidious when we have already agreed to the base, so we have a “yes” on the table, but then all the most attractive features are added for just a bit more cash. By the time we are worked over, the cost may be even larger than the fully loaded option because we wanted a minor modification of specific things or a certain option that wasn’t part of the package. Pricing offer theory takes control of these negotiations.
You walk into a restaurant for a burrito. You don’t want the Burrito Supremo, just the regular burrito, except maybe you’d like organic shallots with that? Fresh sour cream for just fifty cents more? Guacamole for one dollar? Siracha teriyaki sesame seeds? Wasabi crumbles? How about our award-winning mole honey glaze?Another prime example is the cable television business, which was built on this model: throw in a bunch of valueless content with the valued content but never disaggregate the valuable content. If you want your sports channel, you’ll have to buy the whole Sports Package.
Although your burrito add-ons may not be negotiable, the counter to this tactic in other settings is simple: what is the gross-up and what do the individual components cost? Add up the disaggregated parts and you often come out ahead. Negotiate hard on lowering the cost of the parts you want, and use substitutes to leverage your target. The way to get to a firm price is to introduce all the variables that go into the price to reduce risk. Identify cost elements by introducing variables: discounts, time/place of delivery, insurance, risk, opportunity costs, etc. Risk can be further eliminated by hedging with a futures or option contracts or insuring by some price protection guarantee premium.