William Poundstone is an American author and skeptic who has published 11 best-selling books on topics ranging from “cosmic complexity and the limits of scientific knowledge” to “the uncensored truth about all sorts of stuff you are never supposed to know.” His latest exposé is entitled Priceless, and explores how marketers use psychological misdirection to get us to spend more but get less.
For example, Poundstone uses the lingo of “price consultants” to dissect the menu of New York’s beloved bistro, Balthazar. A “star” is a popular, high-profit item. A “puzzle” is high profit but unpopular. A “plowhorse” is popular yet unprofitable. Consultants try to turn puzzles into stars and wean customers from plowhorses, all while convincing diners that the prices on the menu are fair.
One way Balthazar does that is to position the $115 seafood platter in the top-right corner, where the eye automatically goes first. Its role is to make everything else look like a bargain. Indeed, at only $70, the smaller seafood platter right next door seems like a deal, even though there’s no indication of how much food you’re getting. Prada stores use the same technique—carry a few obscenely expensive items in order to make everything else seem reasonable.
Starbucks’ menu is another interesting study. It uses something psychologists call “extremeness aversion.” With ambiguous names like Tall, Grande, and Venti for its coffee sizes, confused or indecisive customers are likely to take the middle choice, which seems the least extreme. What they end up with is an extremely large and expensive cup of coffee.
More sneaky tricks
People just love prices that end in 99. Dave Gold founded the multi-billion-dollar 99 Cents Only retail chain when he discovered that he could get rid of slow-moving merchandise priced at 79 cents by raising the price to 99 cents.
Women tend to pay more. Barbasol shaving cream for men is about $1.69. The women’s version is smaller and costs $2.49. Excedrin “Menstrual Complete” pain reliever costs $6.49, but the virtually identical Excedrin Extra Strength is just $5.99.
Rebates can be a ruse. There’s a good chance that the $1,000 TV with a $200 rebate is identical to the $800 set with no rebate. But if you opt for the rebate, watch your mail carefully, because the rebate check is often disguised to look like junk mail.
Beware shrinkage. Skippy’s peanut butter now has a dent in the bottom of its jar, certain Kellogg’s breakfast cereals now come in a slightly thinner box, and the curvaceous new bars of Dial and Zest soap are half an ounce lighter than before.
It’s not the shipping, it’s the handling. How can that infomercial afford to throw in two Snuggies for just $19.95? Most infomercial products cost only five or six dollars wholesale, but you’ll pay $7.95 in shipping and handling for each of your new Snuggies.
Our view
Every business wants higher sales and wider margins. But in financial services, no one can afford to blow precious brand equity on sneaky tricks. Be creative, but remember that, over time, the marketplace will reward real value—not just the illusion of it.
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