Painful Sushi and Other Pricing Blunders
What’s the worst way to sell something? According to Carnegie Mellon University economics and psychology professor George Loewenstein (see The Pain of Buying and Brain Scans Predict Buying Behavior), selling products in a way that the consumer sees the price increase with every bit of consumption causes the most “pain”. This isn’t physical pain, of course, but rather activation of the brain areas associated with physical pain. In an interview with SmartMoney, Lowenstein noted,
[Consumers are] not weighing the current gratification vs. future gratifications. They experience an immediate pang of pain [when they think of how much they have to pay for something]. That perspective has a lot of implications. For example, it helps to explain why credit cards encourage people to spend; they anesthetize the pain. Paying with a credit card makes you feel like you’re not really spending money when you buy something.
It also explains why AOL switched from pay-per-hour Internet service to pay-per-month. When they did that, they got a flood of subscribers. They were caught totally by surprise by the overwhelming consumer demand. Why do people love to prepay for things or pay a flat rate for things? Again, it mutes the pang of pain. The worst-case alternative is when you pay for sushi and you’re paying per piece. Or watching the taxi meter; you know how much every inch of the way is costing you. [From Professor: Pain, Not Logic, Dictates Spending]
Marketers have realized this for years, and have responded with offers designed to minimize the pain associated with buying their product. A few current, heavily promoted offers include all-inclusive dinner prices (TGI Fridays and others) and a monthly price for any number of movies (Netflix, Blockbuster). In each case, the marketer offers a single, relatively attractive price that removes additional pain from the buying experience.
Interestingly, it’s possible that in many cases, the single price is actully higher than the amount the consumer would have spent on individual food items, movie rentals, etc. Nevertheless, the all-inclusive number is likely to appeal to many consumers, particularly those that Lowenstein would identify as being most sensitive to the pain of buying.
The message to marketers is clear: try to avoid multiple individual “pain points” in the buying process when possible. Obviously, some situations make individual purchases unavoidable – it’s hard to visualize a grocery store that could offer fee-based shopping instead of item-by-item pricing. Other business situations, though, may permit some experimentation with a single price approach for multiple items usually purchased separately, a monthly or annual fee instead of individual transactions, etc. Such an approach may not only boost sales, but in some cases profit margin as well.
We’re glad to see neuroeconomics (and, by extension, neuromarketing) get some thoughtful coverage in the popular press.