We went to buy a mattress yesterday. There are three varieties of mattress: firm, plush, and ultra-plush. After much laying around, we ended up buying a plush mattress. The seller noted that most people buy plush mattresses. Indeed, they do. The aversion to extremes is a psychological phenomenon used and abused by businesses to sell stuff. Here's essentially how it goes down.
Scenario 1. We have two options. That over there is the standard $100 model that has all the basic features you need to get the job done. This over here, however, is the super-fantastic model. The super-fantastic model comes with a 1 year warranty, 2 gigs of ram, and anti-lock brakes. It costs $149.
Scenario 2. Now with mindgames. We have three options. That over there is the basic model (costing $100) that has all the basic features you need to get the job done. This over here, however, is the standard model. It has a 1 year warranty, 2 gigs of ram, and anti-lock breaks. It only costs $149 and there's no reason not to upgrade. But... if you are a real expert user, and you look like you are, you'll probably want to go with our super fantastic model over here. For $249, It has 4-wheel drive, SLI-capable motherboard, and granite counter tops. It's a bit pricier, but completely worth the extra money.
The two scenarios are roughly identical except one has added a super-expensive third option. If you were to plot the sales distribution of the two scenarios, you'd find two interesting bits of data. The first is that some people will most assuredly purchase this new most expensive option. Secondly, and more importantly, far fewer people will buy the cheapest option, instead opting to upgrade to the middle version. What's happened here? Well, the aversion to extremes happened. The very existence of the third super-expensive option sets up the middle choice as the "compromise" option and causes psychological angst in those who might choose the cheapest because they've had to eschew the "compromise" choice for the cheaper one.
The goal of this type of pricing is to sell the middle. This is also why three is a magical version number and so common is products. Three is when there's little chance of overwhelming the customer, but enough versions to cast these types of Jedi mind tricks on buyers.
There are a few ways to break this particular spell. First, and obviously, is to be aware of it. Second, is that informed buyers tend to not much care about psychological angst because they are confident in their selection. It makes sense that if you have a deep understanding of the features you need, the psychological aversion to extremes (which is really about the aversion to the unknown) has far less effect.
Don't underestimate the power of this psychological tool. Next time you go out to dinner with someone who is trying to put his best foot forward (say, a business dinner, or with a new lady friend), and he selects a wine, pay attention to what he chooses. If he knows alot about wine, he probably knows what he wants. But if he doesn't? At a place with a reasonably sized and reasonably priced wine list, the smart money is on him picking the second most expensive wine on the list. The second most expensive choice is the psychologically safe choice. He will almost certainly not select either of the extremes, either.
The goal of this type of price versioning is to push people who might buy the cheapest into buying the medium. Remember that fact the next time you go to your favorite fast food restaurant and they ask which size you want.