Pricing psychology - 33% more beats 33% off

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• 14 years ago

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

wpietri• 14 years ago

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.

delinka3• 14 years ago

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• 14 years ago

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").

gamzer• 14 years ago

Sounds like another advantage of the metric system to me. Comparing prices per 100g, per 1kg and per 1l is doable.

loceng• 14 years ago

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..

gutnor2• 14 years ago

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.

delinka3• 14 years ago

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.

gutnor2• 14 years ago

That reminds me of the offer you can still see in Camden (London). There are street booth selling calling cards: 1 card for 2.99, 3 cards for 8.99 :-)

In the UK they also show the price per unit for all the packaging. There is just one caveat: they don't do it with the discounted prices, only the base price.

lifeisstillgood• 14 years ago

My favourite London based pricing quote was on the pub just leading out of Carnaby Street for years.

  Buy one pint for the price of two, and 
  we'll give a second pint absolutely free !

Loved it for years. Never went in.

hippich• 14 years ago

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• 14 years ago

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'.

adavies42• 14 years ago

pointer tagging!

ljd• 14 years ago

I wouldn't quickly assume Walmart's strange pricing practices are psychological.

I know that Walmart uses advanced analytics for doing pricing and expectation of sales. So it could be possible that these odd cent items aren't for psychological purposes but instead for building accurate pricing models. I can only speculate though but this is what I do and I know that's why we like odd cent items. My company helps eCommerce shops with pricing.

Articles such as this on Wikipedia (http://en.wikipedia.org/wiki/Psychological_pricing#Historica...) can give you an idea about how much speculation there is in pricing.

While I don't have the study readily present, there was actually one done where 7th and 8th graders were shown a number of items with "odd prices" most notably "x.99" prices and were asked later on if they could recall the prices, the distribution were heavily weighted against odd pricing. Most of students recalled either the exact price or rounded up. Very few rounded down.

corry• 14 years ago

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%...

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• 14 years ago

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 :)

bkmartin2• 14 years ago

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• 14 years ago

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...

bkmartin2• 14 years ago

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.

brudgers• 14 years ago

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.

greedo9• 14 years ago

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.

user495982• 14 years ago

And this whole time I thought it was about jobs and education.

teamonkey3• 14 years ago

I'm not convinced by the argument that the middle class stay middle class because they spend too much on convenience. $4752 a year extra will not make me rich, far from it. $475,200 a year extra WILL make me rich.

dionidium3• 14 years ago

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.

JumpCrisscross• 14 years ago

"This numerical blind spot remains even when the deal clearly favours the discounted product" [1]. Thus, it is an irrationality and not calculated convenience.

[1] http://www.economist.com/node/21557801

ranit• 14 years ago

You might be right in a general shopping scenario, but (perhaps) the professor deliberately has chosen “loose coffee beans” experiment. Thus, eliminating all arguments about convenience. In this experiment, one may buy in 1oz increments.

mbesto• 14 years ago

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/...

[2] http://www.amazon.com/Nudge-Improving-Decisions-Health-Happi...

TimGebhardt• 14 years ago

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.

GBKS• 14 years ago

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.

user495982• 14 years ago

"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.

anothermachine2• 14 years ago

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

Pricing psychology - 33% more beats 33% off

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