$9 footlong. How subway is raising prices
Where have all the $5 footlongs gone? A key factor that often drives consumer compromise is price. In the case of a new $9 sub, I suspect this more expensive product will make the original products seem like a wiser and more economical choice. Subway doesn't actually need to sell any $9 offerings to increase their profits and influence over consumers.
Subway wins in two ways. First people tend to take the middle option, so they're less likely to choose the $5 sub. Second, even if people continue to choose the $5 sub, they're going to feel like they are getting an even better bargain than before.
A key factor that often drives compromise choices is price. In the case of the bread-making machine, when customers saw the newer, more expensive product, the original, cheaper product immediately seemed a wiser, more economical and attractive choice in comparison.
At a Subway store in Danbury, Conn., a poster sports a $9 sandwich that includes beef and bacon — truly a marvelous creation, we have no doubt, but nearly twice the price point featured on the Subway web site.
…Behavioral economist Richard Thaler noted in the early 1980s that consumers often need an inflated “reference price” — such as a dress marked down from $150 to $75 — to help them feel that they are getting a good deal. … Most smart marketers work hard to obscure price information to protect their margins; this is why Omaha Steaks come in strange assorted bundles of food, why movie theater candy comes in weird large boxes, and why Toyota minivans are sold with incredibly complex bundled options (FS– why costco uses sizes that are incomparable). Change the shape, boost the add-ons, and damned if a regular Jane or Joe can figure out if the price is a fair shake.
We suspect that Subway, a victim of its runaway $5 success, has had to back away from the cheap enormous sandwich which left little room for profits. Rather than upset customers who might suspect a bait and switch, Subway has thus created a new complex menu filled with distraction…