Eleven pricing strategies that confuse consumers

This trick works for two main reasons: first, consumers don't know exactly how much a product costs, so we rely on parts of our brains that aren't strictly quantitative; and second, although people spend a finite amount of dollars, we make decisions based on clues and half-thoughts that add up to math blindness.

You walk into a Starbucks and see that there are two types of coffee: one with 33% more and no more; the other with 33% less of the original price. Which is better?

They're pretty much the same!", If you are anything like the students who took part in a new study published in the Journal of Marketing, you are wrong!

The two packages may seem equal, but in reality, a 33% reduction is equivalent to a 50% increase. Math Time: Suppose the price of standard coffee is $1, 3 quarts ($0.33 per quart),$1 buys 4 quarts ($0.25 per quart) for the first set, and $66 cents buys 3 quarts ($0.22 per quart) for the second set.

Result: getting something extra for free feels better than getting the same thing for less money. The application of this simple fact is extremely wide. Do you sell oats? Don't talk about price reduction, talk about how big the box is! Selling cars? Save the MPG conversion talk and talk about how many extra miles you can run.

This trick works for two main reasons: first, consumers don't know exactly how much a product costs, so we rely on parts of our brains that aren't strictly quantitative; and second, although people spend a finite amount of dollars, we make decisions based on clues and half-thoughts that add up to math blindness.

Here are 10 other ways consumers are bad at math, according to historian and author William Poundstone. With the help of a friend.

(2)We are heavily influenced by the first number. You walk into a high-end store, assume it's Hermès. Well, you see a bag with a price tag of $7000." Haha, that's ridiculously expensive!" Tell your friends." $7000 for a bag!" Then you find a great watch with a price tag of $367. and Timex. Compared to watches, this one is definitely overpriced. But compared to that $7000 bag you just remembered, it's definitely a bargain. That way, the store can adjust or set your spending expectations.

(3)We are afraid of extremes. We don't like to feel cheap, and we don't like to be cheated. Since we are uncertain about the value of goods, we avoid prices that are too high or too low. Businesses will use our preference for moderation against us. Here's a good story:

People had two beers to choose from: premium beer for $2.50 and cheap beer for $1.80. About 80% of people would choose the more expensive beer. Now introduce a third beer, in addition to the first two, there is a super cheap beer, only $1.60, now 80% of people will buy $1.80 beer, the rest will buy $2.50 beer. No one chooses the cheapest beer.

The third time, they removed the $1.60 ultra-cheap beer and replaced it with a $3.40 ultra-premium beer. Most people chose the $2.50 beer, a small number chose the $1.80 beer, and about 10 percent chose the most expensive $3.40 beer.

In short, we're all blondes. Goldilocks, the name of the little girl in "The Story of the Three Bears." Goldilocks goes to the house of three bears and always chooses a chair and bed that are soft and medium.

(4)We all love reason. In his book "Priceless," he explains what happened when Williams-Sonoma added a $429 toaster to its $279 model: Sales of the cheaper model doubled, even though virtually no one bought the $429 toaster. Lesson learned: if a product doesn't sell, try placing a product that looks almost the same but costs twice as much next to it. This makes the first product look like a must-buy bargain. One reason this strategy works is that people like reasons. Since it is difficult to know the true value of a commodity, we need something to explain our decisions to ourselves. The price difference gives us a reason and an incentive: the $279 toaster is almost 40% cheaper than the other-we got a big bargain! Good reason.

(5)We do what we are told. Behavioral economists like to experiment in schools and find that flashing lights on fruit and arranging salads like candy can make children eat more fruit and salads. But adults are also affected by these simple games. Smart restaurants, for example, use simple tricks such as pictures and frames to design menus that draw our attention to the most profitable dishes. A good rule of thumb: if you see a dish on the menu that is highlighted, framed, illustrated, or placed with a very expensive dish, it may be a high-margin product that the restaurant wants you to see and consider.

(6)We let our emotions control us. In one famous experiment in Poundstone's book, volunteers were offered a certain amount of money, up to $10. A bid deemed unfair (say $1) activates the cortex,"which is also triggered by pain and stench." We generally feel sick when we think we're being ripped off-even if it's a good deal. Poundstone equates this with the mini-bar experiment. It's late and you're hungry, so there's a Snickers bar, but the price makes you so unhappy that you decide you'd rather starve yourself than feel ripped off. Bargain, on the other hand, makes us feel good about ourselves. Even the world's most useless junk can be attractive, as long as it's very cheap.

(7)It's easy for us to become dumber by alcohol, time, and decisions. When you're young, you get drunk in a bar and it's easy to do stupid things with strangers." Have I fully evaluated this complex romantic scenario?" After seven drinks, this question becomes difficult to answer, so we usually ask ourselves a simpler question: "Is he/she sexy?" When we are drunk, stressed, tired, etc., we are more likely to ask and answer simple questions about shopping. Cheap candy bars and chewing gum are often kept near the checkout counter in grocery stores because that's where tired shoppers are most likely to indulge cravings without paying attention to prices. Lunch with alcohol is good for reaching agreements because alcohol immediately narrows the range of complex factors in our heads. If you want someone to take a risk of being underestimated, get him drunk, or tire him out or exhaust himself.

(8)We are distressed by transaction costs. In a personal finance column here, Megan McArdle asks her readers to forgo recurring transactions like gym memberships and subscriptions to newspapers and services they don't use." Don't buy things you don't consume." It seems like a perfectly clear suggestion, but Megan has an important point. We are attracted to subscriptions, memberships and bundles, partly because we try to avoid transaction fees. We'd rather pay a little more than suffer the psychological pain of pulling out our wallets and watching our money flow to every gym season/movie, etc.

(9)But we're acting weird about kickbacks and guarantees. Now that I've told you consumers to avoid additional payments, I should add two of our favorite extras: rebates and guarantees. The first is the fantasy of buying wealth (I get paid for it!) The peace of mind of the second kind of purchase (now I can have this thing forever, don't worry!) Both are basically tricks." Instead of buying something and getting a discount,"Poundstone writes," why not pay a lower price in the first place?" "[Guarantees] don't make any sense," David Cutler, a Harvard economist, told The Washington Post."The implied probability that a product will fail is much higher than the risk that you can't afford to repair or replace it." If you buy something for $400, that level of spending is not a risk you need to guarantee for most consumers under any circumstances."

(10)We're obsessed with the number nine. Up to 65% of retail prices end in 9, why? Everyone knows that $20 and $19.99 are the same thing. But the number 9 tells us a simple truth: this item is on sale. This thing is cheap. This item was priced by someone who knows you like discounts and bargains. In other words, the 9 has moved beyond glamour pricing to become a silent understanding cable between buyer and seller, indicating that the product is reasonably priced and competitive. A 9 in the price of a shell fish platter in an upscale restaurant is stupid. No one willing to pay $170 for lobster is looking for a discount. But the same person, when buying underwear (research has repeatedly shown), is more likely to buy products whose price ends in 9. Remember: Shopping is an attention game. Consumers aren't just looking for products. They are also looking for clues that the product is worth buying. The bargain-hunting corner of our brain finds deals in the number 9.

(11)We are governed by a strong sense of fairness. I've already explained how our brains react differently when we see bargains and when we kill people. The shopper's brain is driven by a sense of fairness. We come back to the point where we don't know how much things cost, so we use clues to tell us how much we should spend on goods. An experiment by the economist Dan Ariely explains this very well. Arelli lied about having a poetry recital, then told one group that admission would cost money and another that they would get paid to attend. Then he told both groups that the recital was free. The first group was eager to participate, believing that they had received something valuable for free; the second group mostly refused, believing that they had been forced to volunteer for the same thing without compensation. What is the value of a behavioral economist's poetry recital? Students don't know. That's the point. I don't know. This is also the key. How much does a buttoned shirt cost? How much does a cup of coffee cost? How much does a life insurance policy cost? Who knows! Most of us don't know. As a result, the shopping brain uses only what it knows: visual cues, evoked emotions, comparisons, proportions, about bargains vs. It's like a rip-off. We're not stupid. Just impressionable.