
Pricing psychology - 33% more beats 33% off - asanwal
http://moneyland.time.com/2012/07/03/consumers-prefer-to-get-more-rather-than-pay-less-because-theyre-bad-at-math/
======
brudgers
The costs of shopping is more go beyond money, there's time and bother, too.
If I'm out of coffee on Sunday morning, I have an extra trip to the grocery at
an inconvenient time. If it's Tuesday morning before work, then my options are
more constrained.

The larger amount allows a person to hedge against a future shortage for the
same cash outlay. The shopper already planned to spend $10, and getting more
today gives them flexibility in the future, e.g. the regular weekly shopping
trip can be moved from Saturday morning to Monday after work because there is
adequate coffee on hand thereby allowing Saturday morning to be spent
gardening.

Conversely, in terms of flexibility, the discounted coffee does not offer any
direct correlation to convenience - I cannot hire someone to go coffee
shopping for me on Sunday morning with the savings. Furthermore to achieve the
flexibility offered by the larger size, I have to spend significantly more
than the $10 I intended and purchase two 10 ounce packages - doubling my
coffee expenses for the week -- storing an 10 additional ounces may also be
more inconvenient than storing 3.3 additional ounces.

People pay for convenience all the time and doing so is economically rational.
Without an accounting of how such habits may impact purchase decisions in the
overall conclusions are not quite justified.

But more importantly, the design of the study based upon an undergraduate
student population performing an activity at which they have little experience
- grocery shopping - does not necessarily reflect the purchasing habits of
more experienced shoppers with a life time of coffee addiction behind them.

~~~
greedo
And this is why many of the poor stay poor, and many in the middle class stay
middle class. The poor don't have the capital to take advantage of the greater
discount and the middle class tend to value short term "convenience" over long
term savings.

If a poor family of four spends $600/month on groceries at standard pricing,
their inability to "afford" the 33% discount costs them $2376 a year. For a
middle class family spending $1200/month, that's $4752.

Many of the successful poverty programs try to elevate the savings of poor
families so that they can stop buying groceries and supplies at the
"convenient" prices.

~~~
dionidium
Poor people are poor because they don't make as much money as the middle
class. Middle class people are middle class because they don't make as much
money as the rich.

You can't explain that away by criticizing questionable spending at the
margins.

~~~
greedo
I'm not criticizing them for questionable spending at all. They simply don't
have the capital to take advantage of better purchasing options.

~~~
larrys
"They simply don't have the capital to take advantage of better purchasing
options."

Similarly they will buy a used car at an inflated price because they are
lacking the dollars to purchase a new car and/or have the credit to do so.

Having more money gives you the flexibility to consider all options at least.
If you don't have the money you're not even in the game.

~~~
dionidium
I get that you're trying to make a larger point, but this isn't a very good
example with which to do it. Used cars are nearly always a better value than
new cars.

------
delinka
Also, people think they're getting a deal when they buy bulkier items. For
example, here in my town, you can buy a five ounce can of tuna for, say, 79
cents. That's 15.8 cents per ounce. The twelve ounce can goes for $1.98.
Although the tags on the shelf mention the per-ounce price in addition to the
full price, people will buy the twelve ounce can. Now maybe there are other
reasons to over pay- don't want to open two cans later; 10 onces is too
little, 15 ounces is too much. But it's probably the psychology of "more is
better" overriding reason's "lower price per ounce."

It's not necessarily about "bad at math" - it's about psychology. Ask Wal-Mart
- there's a reason all their prices end in certain numbers and seldom the
'standard' numbers. For example, you'll often see $x.44, or $x.92, but seldom
x.95 or x.99. I don't know the precise reasons because Wal-Mart won't discuss
it. Suffice it to say "psychology."

What ultimately irritates me about this, the price will go up on a box of
Cap'n Crunch over the course of three months. Then suddenly "20% more for
free!" get stamped on a larger box at that higher price.

~~~
hippich
Re: odd pricing. I've seen in store saying "discount bla-bla-bla do not
applies to items with price ending with .94." So they used price as unique
feature to see if item was already discounted.

~~~
gmac
At Dixons in the UK (when I briefly worked there 10 years or so ago) the pence
were used in a similar way to signal things to floor staff. For example, IIRC,
prices ending .98 signalled a discontinued product.

Additional staff signalling was provided by messages on price tags. For
example, 'please ask if you need help' meant 'high-margin, high-commission
item', whereas 'have you remembered your spares and accessories?' meant 'low-
margin, low-commission, item'.

~~~
Albuca
That is actually still in use today.

Working part-time in retail at Staples Canada, I can tell you that all of our
prices ending in $x.97 or $x.x7 are clearance; and therefore subject to an
additional discount if there is a current promo going on.

As for the random prices, I have no idea. Although it does make it easier when
doing prices changes for flyers, because in each section, no two products have
the same price (cent wise).

~~~
ars
This basically confirms that getting rid of the penny and the nickel is a good
idea.

Just round everything to one decimal place. If retailers don't care about
amounts under $0.10 then there is no need for such a currency.

------
msmithstubbs
The Time article is a rewrite of the original article from The Economist

<http://www.economist.com/node/21557801>

------
mbesto
If you find this interesting, there is a great book called "Thinking, Fast and
Slow" by Daniel Kahneman[1]. Highly recommend it if you're interested in
understanding buying behavior and the psychology behind many of these economic
decisions. It's also largely based on the research from Richard Thaler in his
book Nudge.[2]

[1]- [http://www.amazon.com/Thinking-Fast-Slow-Daniel-
Kahneman/dp/...](http://www.amazon.com/Thinking-Fast-Slow-Daniel-
Kahneman/dp/0374275637/ref=sr_1_1?s=books&ie=UTF8&qid=1341581983&sr=1-1&keywords=thinking+fast+and+slow)

[2]- [http://www.amazon.com/Nudge-Improving-Decisions-Health-
Happi...](http://www.amazon.com/Nudge-Improving-Decisions-Health-
Happiness/dp/014311526X/ref=sr_1_1?s=books&ie=UTF8&qid=1341582053&sr=1-1&keywords=nudge)

------
wpietri
What kills me is Time's air of surprise. The point of so much of marketing,
especially price promotion, is exactly to confuse people into buying. So _of
course_ this stuff will be phrased in ways that are hard for people to
evaluate.

~~~
delinka
Even the "price per unit" stickers on shelves are done this way. One says
"price per ounce" and the larger item next to it with a different price has
"price per pound."

~~~
kalleboo
So are the price per unit stickers in U.S. stores voluntary or is there some
consumer protection law that forces them to be there? In Sweden they have to
have them by law, and there are specific units that must be used by product
category (generally the SI base units, and then for things like washing powder
"$/wash").

~~~
danielweber
It is state law. Some states require every individual unit to have a price tag
on it, not a shelf tag, for example. That sounds awesome for consumer
protection but realize it means that Home Depot has to individually wrap and
price individual screws.

~~~
megablast
Are many people buying only one screw at a time?

~~~
ars
Sure. If you only need one screw to fix something, then you only buy one.

They are sold in bulk from drawers so you can buy as much or as little as you
want. (You put them in a bag and write the item number and quantity on it, and
they charge you whatever you wrote.)

------
loceng
That could merely be because we've not been exposed to "33% more" as much, at
least I haven't noticed it. I don't really buy advertising-driven food
though..

------
corry
Anyone who enjoys reading about the psychology of pricing should immediately
check out Predictably Irrational by Dan Ariely if you haven't already.

See the outline/overview here:

[http://bookoutlines.pbworks.com/w/page/14422685/Predictably%...](http://bookoutlines.pbworks.com/w/page/14422685/Predictably%20Irrational)

It's all about how people (irrationally) make price comparisons / value
judgements / set expectations / etc, and how you can use this knowledge for
good (or evil). Great reading for any B2B startup (or B2C I suppose!)

~~~
dools
I'll put on a vote for Priceless by William Poundstone, too (I haven't started
predictably irrational yet because someone else had it on loan :)

------
GBKS
I think there's a point at which people simply stop caring about the details
and follow their gut. If you were to try to find the best deal for every
grocery item you purchase, you'd spend a lot of time comparing prices per
unit/weight, and how available deals affect those prices. People probably
rather spend and extra 50 cent and save themselves 5 minutes of comparing
numbers on tiny stickers. From that perspective, math skills are irrelevant.

------
TimGebhardt
It's also the reason why it's so important in investing not to lose your
principle (Warren Buffet's #1 rule - don't lose money #2 - see #1):

If you start with $100 and you want to make $150 you need to make a 50%
return. If your $100 drops to $50 you need to make a 100% return just to get
back where you started, let alone where you want to end up at $150.

------
bkmartin
Here's a question... now that we know that this is a psychological "trick"
played on people to get them to spend more of their money, is it morally wrong
for those of us "in the know" to price things this way? Marketers are
essentially trying to deceive people into spending more money. Yes, there is
an argument that people are free to act as they please and that enough
information is afforded them to make the right choice. But we wouldn't be
talking about this if people actually acted rationally most of the time when
it comes to this stuff. So at what point does taking advantage of irrational
people cross a line from ok to wrong? Or does it? What implications would this
have on businesses today if the tricks stopped?

~~~
icegreentea
If you wanted to stop psychological tricks, then most of advertising/marketing
as we know it would disappear.

That said, it seems that people actually enjoy playing this game. Like the
customers prefer convoluted schemes like this. It's not like they are
completely oblivious to the tricks going on. I think it's fair to say that the
vast majority of the western world is actually pretty savvy at spending their
money.

But anyhow, remember what happened to JC Penny when they tried to simplify
their pricing (no more sales!). They basically got murdered. Now it's partly
their fault for not marketing it well (ha! look at that, you have to advertise
that you're not screwing with your mind), but it's also cause it takes some of
the 'fun' away.

Here's an analysis. [http://www.moneytalksnews.com/2012/06/05/what-shoppers-
can-l...](http://www.moneytalksnews.com/2012/06/05/what-shoppers-can-learn-
from-jcpenneys-loss/)

~~~
bkmartin
This is true, there is definitely a lot of fun that people have trying to hunt
down a "bargain". They like to feel like they got the best of those bastards
that are always screwing them! Or did better than their friends, like a
competition. So I do get that. But that's not the case when buying the staples
of life like food and laundry or dish soap, at least not in my mind since you
are forced to buy that stuff... you need it. That takes some of the fun out of
it for me anyway... feels more like a bill then a choice to spend.

------
corin_
The editorialised title on HN is a bit ambiguous, it doesn't specify whether
"beats" is for the shopper or the shop. As the article is written from the
point of view of shoppers, I would say that 33% off beats 33% more.

~~~
unwind
They mean an implicit "for most people ...", i.e. it is how the shopper
perceives things, not how they really are for them.

------
tomp
Had he chosen $9 for his example, it would be much much simpler :)

~~~
StavrosK
Or 50% :P

------
gutnor
I'm sure that people suck at math and that indeed the conclusion of the
article are mostly correct.

However, there are genuine cases where getting more is more cost efficient
than a discount. It all depends on the quantity you need - sometimes, a little
bit more is just all you need to avoid buying 2 units. Especially in the UK
where you almost never get 33% discount but instead "buy 2 get 1 free" offers.

------
user49598
"one with 33% more beans for free, the other at 33% off the price"

I don't know if it matters, but to me "33% more for free" presents more
information. It tells you that the quantity has increased and the cost has
stayed the same. "33% off" just tells you the price change but nothing about
quantity. Now I have to figure out if I'm actually getting the same volume I
did last week.

------
anothermachine
same story in the Atlantic: <https://news.ycombinator.com/item?id=4209205>

------
cashcab
I love this kind of content :D

~~~
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