Understanding Relativity in Consumer Choices

1. What is this in one sentence?

Relativity is the psychological principle that people evaluate options by comparing them to other options available at the same time or in the same context, rather than in isolation.

2. What it means to businesses:

Businesses can use relativity to influence customer decision-making by designing how products, services, or brands are presented in a given environment. The perception of value, quality, or desirability often depends on what it’s compared to, rather than intrinsic factors alone.

3. Customer opportunity:

Relativity offers the chance to guide customers toward premium options by creating smart comparisons. For example, customers may perceive a mid-priced product as a great value when placed next to a significantly higher-priced option, encouraging them to spend more while feeling satisfied with their decision.

4. Business threat:

If a competitor uses relativity better than you, customers might perceive their offerings as more attractive—even if your product is objectively superior. Poor pricing or contextual framing could make your product seem overpriced or unappealing.

5. Business examples of this effect:

• Apple’s iPhone Pricing Strategy: Apple typically launches a lineup with a “decoy” product—an ultra-premium model like the iPhone Pro Max. This makes the standard iPhone look more affordable by comparison, even though it is still premium-priced. Customers often choose the mid-tier option, perceiving it as a better deal.

• Tesla’s Model Lineup Strategy: Tesla uses relativity effectively by offering multiple versions of its cars, such as the Model 3 in standard, long-range, and performance configurations. The highest-priced Performance model acts as a reference point, making the mid-tier long-range model appear as a “reasonable compromise” for customers who want more features without the top-tier price tag. This structure nudges many buyers to spend more than they initially intended.

• Restaurant Menu Design: High-end restaurants often include a very expensive dish on their menu. While few customers order it, its presence makes the rest of the menu seem more reasonably priced, increasing the likelihood that customers will spend more than they might have otherwise.

6. How can we use data to maximise this effect?

• Price Testing and Analytics: Use A/B testing to experiment with price anchors and decoy options. Analyse data on customer purchasing patterns to identify the price range that maximises revenue without deterring purchases.

• Customer Segmentation: Combine demographic and behavioural data to understand what comparisons resonate most with specific groups. For example, luxury-focused customers might respond better to exclusivity, while budget-conscious ones are swayed by perceived value.

• Competitor Analysis: Monitor competitor offerings and contextual positioning. Adjust your framing to highlight your strengths in comparison.

• Heat-map Analytics: In e-commerce, track how customers engage with products visually. Placing premium and mid-tier options strategically can boost the relativity effect, steering customers toward desired outcomes.

By leveraging relativity, retailers can craft an environment where customers feel empowered to make decisions that also benefit the business. It’s not about manipulation—it’s about shaping perceptions to align value with expectations.

This effect relates to price anchoring, however, relativity is beyond just price alone and encompasses environment and visual and emotional surroundings.