7 ms·

Pricing psychology - 33% more beats 33% off

79 points by asanwal 14y ago

cashcab 14y ago
I love this kind of content :D
- ars 14y ago
  You are new here. This type of post is not desired here. It adds nothing to discussion and is just noise. You need to be very careful now - your account karma is negative, this can cause you to be auto-banned, and if it happens you will not be told. Be sure to post good messages, and not any with empty content. Also till you build up a karma cushion avoid controversial posts.
tomp 14y ago
Had he chosen $9 for his example, it would be much much simpler :)
- StavrosK 14y ago
  Or 50% :P
msmithstubbs 14y ago
The Time article is a rewrite of the original article from The Economist http://www.economist.com/node/21557801 http://www.economist.com/node/21557801
corin_ 14y ago
The editorialised title on HN is a bit ambiguous, it doesn't specify whether "beats" is for the shopper or the shop. As the article is written from the point of view of shoppers, I would say that 33% off beats 33% more.
- unwind 14y ago
  They mean an implicit "for most people ...", i.e. it is how the shopper perceives things, not how they really are for them.
wpietri 14y ago
What kills me is Time's air of surprise. The point of so much of marketing, especially price promotion, is exactly to confuse people into buying. So of course this stuff will be phrased in ways that are hard for people to evaluate.
- delinka 14y ago
  Even the "price per unit" stickers on shelves are done this way. One says "price per ounce" and the larger item next to it with a different price has "price per pound."
  - gamzer 14y ago
    Sounds like another advantage of the metric system to me. Comparing prices per 100g, per 1kg and per 1l is doable.
  - kalleboo 14y ago
    So are the price per unit stickers in U.S. stores voluntary or is there some consumer protection law that forces them to be there? In Sweden they have to have them by law, and there are specific units that must be used by product category (generally the SI base units, and then for things like washing powder "$/wash").
    - delinka 14y ago
      They are required in the US. Apparently, requiring specific units would be onerous.
      - to3m 14y ago
        The units are SI in the UK, but retailers appear be allowed to mix and match. This is particularly noticeable with milk in Tesco, at least last I looked - the price of the 1pt and 2pt milk cartons were priced in pence/100ml (~£0.09/100ml, I think), and the 2L+ ones were priced at £/L - ~£0.55/L ;) I now buy the 2L cartons...
loceng 14y 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..
gutnor 14y 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.
delinka 14y 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.
- gutnor 14y 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 14y 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 14y 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.
  - 14y ago
corry 14y 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%20Irrational 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 14y 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 :)
bkmartin 14y 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 14y 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-learn-from-jcpenneys-loss/ http://www.moneytalksnews.com/2012/06/05/what-shoppers-can-l...
  - bkmartin 14y 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.
user49598 14y 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.
brudgers 14y 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.
- greedo 14y 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.
  - user49598 14y ago
    And this whole time I thought it was about jobs and education.
mbesto 14y 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/0374275637/ref=sr_1_1?s=books&ie=UTF8&qid=1341581983&sr=1-1&keywords=thinking+fast+and+slow http://www.amazon.com/Thinking-Fast-Slow-Daniel-Kahneman/dp/... [2]- 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 http://www.amazon.com/Nudge-Improving-Decisions-Health-Happi...
TimGebhardt 14y 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 14y 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.
- deleted 14y ago
  [deleted]
anothermachine 14y ago
same story in the Atlantic: https://news.ycombinator.com/item?id=4209205 https://news.ycombinator.com/item?id=4209205

79 points by asanwal 14y ago

cashcab 14y ago

I love this kind of content :D

ars 14y ago
You are new here. This type of post is not desired here. It adds nothing to discussion and is just noise. You need to be very careful now - your account karma is negative, this can cause you to be auto-banned, and if it happens you will not be told. Be sure to post good messages, and not any with empty content. Also till you build up a karma cushion avoid controversial posts.

tomp 14y ago

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

StavrosK 14y ago
Or 50% :P

msmithstubbs 14y ago

The Time article is a rewrite of the original article from The Economist http://www.economist.com/node/21557801 http://www.economist.com/node/21557801

corin_ 14y ago

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 14y 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 14y 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.

delinka 14y 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."
- gamzer 14y ago
  Sounds like another advantage of the metric system to me. Comparing prices per 100g, per 1kg and per 1l is doable.
- kalleboo 14y 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").
  - delinka 14y ago
    They are required in the US. Apparently, requiring specific units would be onerous.
    - to3m 14y ago
      The units are SI in the UK, but retailers appear be allowed to mix and match. This is particularly noticeable with milk in Tesco, at least last I looked - the price of the 1pt and 2pt milk cartons were priced in pence/100ml (~£0.09/100ml, I think), and the 2L+ ones were priced at £/L - ~£0.55/L ;) I now buy the 2L cartons...

loceng 14y 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..

gutnor 14y 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.

delinka 14y 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.

gutnor 14y 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 14y 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 14y 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.
- 14y ago

corry 14y 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%20Irrational 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 14y 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 :)

bkmartin 14y 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 14y 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-learn-from-jcpenneys-loss/ http://www.moneytalksnews.com/2012/06/05/what-shoppers-can-l...
- bkmartin 14y 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.

user49598 14y 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.

brudgers 14y 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.

greedo 14y 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.
- user49598 14y ago
  And this whole time I thought it was about jobs and education.

mbesto 14y 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/0374275637/ref=sr_1_1?s=books&ie=UTF8&qid=1341581983&sr=1-1&keywords=thinking+fast+and+slow http://www.amazon.com/Thinking-Fast-Slow-Daniel-Kahneman/dp/... [2]- 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 http://www.amazon.com/Nudge-Improving-Decisions-Health-Happi...

TimGebhardt 14y 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 14y 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.

deleted 14y ago
[deleted]

anothermachine 14y ago

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