First thing that came to my mind was computers... when you are comparing brands... not sure, though

I remember selling vacuums and there were two middle-high end vacuums; one was better than the other, and anything above it was too high in price and anything below was a piece of crap. The customer invariably picked the cheaper of the two, thinking they got an awesome deal.

Is this similar to the bait and switch? Many stores will bait you with the promise of low prices but switch you to a more expensive purchase.

I hate when people use the term bait and switch because a lot of people do not know the difference between high pressure sales and a truly fraudulent circumstance of bait and switch. (Not you ConsumptionJunkie, but your comment made me think of that)

@ConsumptionJunkie: Not really. B&S requires an advertised product to not be available. Here they may be trying to fool you, but you can always buy the best and/or cheapest option.

I don't know about the examples. Maybe on an impulse purchase, in which case I don't care about overpaying or price analyses or anything. I don't spend more than I can afford, so on an impulse purchase, I just don't care. I don't bother trying to think about it.

But say for a car? That's a major friggin' deal. I can't see myself ever being swayed but something so silly. In fact, I'll probably have already made the decision before I ever'd step foot onto the lot.

Maybe a little lower on the scale. I'm considering an entry-level DSLR. To me, the price range for these takes them out of the "impulse buy" category, and so I'm putting lots and lots of thought into it. On the other hand, I guess there are people that just wander into Best Buy and trust the 19 year old kid. Maybe they'd walk out of the deal on the wrong end for the reasons stated in the article?

@ConsumptionJunkie: Nah, this is just smart psychological marketing.

Hmmm. Sharks with lasers, seabass with lasers, and seabass without lasers. Yeah, definitely pick the seabass with lasers.

I was at Villan Depot yesterday. They had sharks with lasers, seabass with lasers, and seabass without lasers. I picked the seabass with lasers.

so this is like when the hott girl hangs out with the "not so hott" girl to make her self look better? ahhh gotcha

OK... Chicken McNuggets, Burger King Burger, or Burger King Burger WITHOUT Used Condom. What's it gonna be?

It's similar to how no one wants to buy the *most* expensive item, but they'll buy the second or third most expensive. They won't even look at the least expensive items.

Look at hdmi cables.. everyone goes for the $10 cable, no one gets the $60 monster cables and no one gets the 99 cent cables, even though there is absolutely no difference between any of them.

@obbie: Close. There needs to be a third option, though, like a drag queen, or an inflatable gerbil.

This reminds me of economics and opportunity costs with a production possibilties curve...hehe

@obbie: no. This is like when you have to choose between REALLY HOT GIRL by herself, and Not-quite-as-hot-girl who is standing next to an ugly girl so she looks better in comparison.

@balthisar: I don't know, it seems like higher the price, more irrational the consumer. See, we'll coupon-clip and bargain-hunt to save on groceries, but when it comes to cars or houses or yachts, the people are more emotional, and the comparisons become more difficult (while the example cited here is useful, purchasing crieria are very seldom isolated like that).

are we gonna factor in that red cars have a higher chance of getting a speeding ticket?

We do a similar thing in art with clients (internal or external) You deliberately make something with a mistake that you already have fixed or intend to fix. That way the client had something to spot and point and and then feels good about the "improved" product afterwards.

Yeah I've noticed that Future Shop does it. They'll put two nice let's say, Gateway machines next to a bottom of the line, let's say Compaq. Then beside the two Gateway machines, they'll put a long list of things that they do, that the Compaq doesn't. Obviously the two Gateway machines are better, right?

Well here's the kicker, the one Gateway machine doesn't exactly have the same features as the other Gateway, but you'd have to really read the specs on the little product card with the price to find that out. Most people would just grab the cheaper of the two and be done with it, and find out later it might not have the same features as described. But then again, if you're going to pay Future Shops' hilariously inflated prices, you probably don't care about features in the first place.

Wine shops use this kind of tactic. They'll put expensive bottles of wine on display at the end of a rack. That way, if there is a $75 bottle on display, you'll stay away from the $10 wine and buy the $30 bottle instead so as not to either appear cheap or buy seemingly low quality wine.

At a restaurant, never buy the second cheapest bottle of wine on the wine list. That is almost invariably the biggest selling bottle among less knowledgeable customers. They don't want to seem cheap, so they won't buy the lowest priced bottle, yet they don't want to spend a lot of money on products they're not familiar with. Often this is the wine that will provide the restaurant with the best margin.

As someone who grew up in the automotive retail industry, I can say this is only one of many ways to make numbers lie.

Another example of how they use numbers to turn a profit is to 'qualify' you, whether you have your own financing or need them to get you financed. If you need them, you are categorized as a payment shopper.

When it's time for negotiation, the sales representative will work that payment angle, asking you how much a month you can afford. You tell them, they go to the manager to see if it's approved, and they come back with a counter-offer $45/month more.

"It's only $45. I know you can swing it," is usually the pitch you'll get. Over 5 years, with a new car manufacturer's 3.8% interest, that's about $2964.00 added to the price of your car, which you don't know because you've been working the monthly payment. You have the right to ask, before you finalize any deal, to know what the final, out the door cost of the vehicle. Don't expect to always get the truth.

Even though your financial contract gives you a final owing balance over the term, most people don't see it until it is too late. The dealer has no motivation to verbally disclose to you what is printed on your contract.

When shopping for a car, bring your own financial calculator, or know ahead of time what your purchase numbers are.

@dorianh49: that's only if they're selling you the "not so hott" girl.

For all fans of economics who never quite felt that the field of econ was living up to its full potential, Predictably Irrational is an awesome read. It's a highly accessible introduction to the relatively new and brilliant field of behavioral economics. I read it cover to cover in 2 days, because I could hardly put it down.

@balthisar:

Your dSLR is a good example.

Assume for a momemt that all cameras are the same (I know they are not, but assume that fact for a momemnt. Also assume the MSRP is identical, as is the discount price to the vendor.

Decoy pricing can be done several ways and to achieve several objectives.

First is the low price. Got a lot of units in stock, sell them cheapest.

Second is the middle price. Got some in stock, not necessarily a lot of them, so not real eager to sell that stock ('cause would then have to order more.... and the new model year is coming out).

Third is the highest price. High price is better to some customers. Reinforce that fact.... put the item on the endcap as the featured product. Fill the store with lots of manufacturer promotional literature and displays. Tell your 19 year old selling studges to push that brand and make $2 for every one sold.

And now the store has manipulated the products. Tightwads get their "I pulled one over on the man" price leader. Easily impressed customers get "directed" into the highest price model. And the middle priced product sits because that is exactly what the store wants to do with the brand.

Find decoys all over the typical electronics company (B&M and 'net) with price incentives, special offers, featured product placements etc on the units they want to sell.

@aquaregia: If you have 10 regular beans and 1 magic bean, I would expect you try to sell more regular beans. However, basic economics says you should charge less for the regular beans because they have a higher supply.

Decoy effect on the Predictably Irrational blog

Wikipedia on Decoy Effect

Both have good examples.

Examples of Decoy Pricing? Yup, last year.

I was at Walmart and needed to get some wooden ducks for the big hunting trip with the boys. Bought a bunch of them, too.

The only part that doesn't seem logical to me, and is something I've never seen, is how A being better than -A makes A better than B. I can see how if they're selling A for $20, and they're selling -A for $18, but the benefits are much greater on A how I'd buy A, but if B is also $20 and has a completely different feature set, I'm still going to be torn between A and B, I'll just have left -A out of the picture.

I agree in theory to the concept that -A being badly priced makes A look like it's cheaper than what it should be due to the similarities and therefore seems like a good deal, but I think this is highly situational and is hardly common behaviour.

@aquaregia: I actually dislike a lot of what this site posts. I think many things are more of a disservice than a help and do real damage. This post, however, I think is fine. It actually is educating. It does inform. I like it.

@dreamcatcher2: Heh, funny you mention that because everyone in my department at work (I'm an IT Engineer) thinks I'm weird because I consider myself a closet economist. After I had finished my Engineering major work in college, I had a few electives and English classes to take, so to fill out my schedule I took Econ classes. I fell in love with Economics then.

Thanks for the tip, I'm going to check this out.

Where's the car that's satisifies both criteria A and B? As far as I'm concerned, they're both decoys to keep me unhappy so I'll try again when the new models come out next year.

I can't think an example of where a obvious decoy might have affected my decision, but I'd actually thank them for throwing something into the mix. I hate making decisions where I have to decide which of my desire is most important.

I could go on and on with tedious recent examples where I was faced with the A xor B choice: cameras (DSLR and point-and-shoot), surge protectors, light bulbs, digital pianos, LCD projectors, stereos, travel mugs, insulated staples, occasional chairs...

@godlyfrog:
A becomes better than A- AND B because A has a positive valence attached to it.

Sally and Tammy are both hot, but Sally's sister is a prude. This makes the fact that Sally puts out salient to me. I attach that meaning to Sally, but not necessarily to Tammy.

This is semiotics.

"[His] research shows that most people would choose the red Civic with air conditioning over both the other cars".

Maybe more people prefer red over blue. Even if blue has air conditioning, too.

@shake1dde:

Yes, someone selling something is going to do what is necessary to sell it. However, these ideas are counterintuitive. One only knows how this works by studying consumer behavior. So you can always conclude that people will try to sell things as best they can, but that doesn't explain HOW they do, especially how those most effective do it.

@MaytagRepairman: 100 cocktails to you sir. That's excellent.

@sean77: Sadly...I'd say the majority of retail-store shoppers buy the $60-120 Monster Cables... They're totally clueless that you can buy good HDMI's for $10-20 off Monoprice.

right away I thought about the iPhone 3G...

hmmm, i gotta say, i'm harsh on consumerist sometimes, however this is good reporting, well done

Isn't that what helped cause the mortgage mess-selling dreams/greed or dream house BEFORE the ARMs were introduced into the equation?In other words you have 3 choices:

1) the house you want
2) the price range you want
3) the house you want at the price we want.

In others it's selling by feature to disquise the price?

@MaytagRepairman: thanks for clearing that up. For some reason I have always understood seabass economics better than any other

@Jetfire: Interesting examples. That clears up the whole idea considerably, especially the Wikipedia MP3 player one.

It seems to me that the easiest way to avoid this sales tactic is to know what you want.

To follow up with the MP3 play example, if I know I want to be able to store the entire Ring des Nibelungen on a player at a particular bit rate, I can calculate that, look for the players that meet my capacity needs and choose between them based on price.

Granted, things get more complicated the more features there are to choose from, but if you clearly think through your needs, you can pick the features that are important to you and ignore the rest.

This whole effect seems set up to take advantage of people who browse and buy on impulse. You avoid this in the same way you avoid impulse buying in the grocery store—make a list of what you need and stick to it.

@aquaregia:

What the fuck, man...this post is doing everything you say it isn't doing and should be doing.

@Corydon:-targets impulse buyers and know what you want.I think you summed it up right there.

I think that's how they get people to buy those stupid warranties with the feature being piece of mind for x dollars more.

Most stores probably don't want the disciplined customer who knows what they want.If you know what you want you probably did research which makes you less susceptable to alternate choices.

@Michael Belisle:
Obvious decoy? How about soda at the movie theatre? You have a couple sizes, the smallest being an outrageous price. However the sizes are only priced a quarter or so apart and so its an easy upsell because "you are getting a better deal" Never mind you're still getting soaked on the the price.

This is core 101 Marketing, doubters. :)

It's not bait & switch, it's more anchoring.

Say, the dSLR example. A Nikon and a Canon. And a Canon that has a slightly slower max ISO setting. Adequate, except for, say sports shots in a somewhat dimmer than usual gymnasium. The first Canon now looks better, even though, for the vast majority of the prosumer market, the feature set is identical. And, if it looks better, there's more implied value = more demand = less price elasticity.

Even though if you compared the first Canon with the Nikon, the Nikon's better (lenses, accessories and, dare I say, the body itself), some undecided shoppers would trend towards the first Canon.

Don't focus too much on the price aspect, since that's only one axis of the bundle of benefits. Shopping just on price is for rubes.

I haven't decided yet if this is ingenious or evil.

I would agree that I've fallen victim to this. I can't recall a time but I know I have because I followed the logic.

It doesn't have to be related items either. It could be two different purchases that, in your mind, are equal. For example, buy a car or by cabinets. Obviously, cabinets return your investment when you sell your house. But you may need a car to continue making payments on said house.

But then you find out that the car you want just became less expensive.

@Geekybiker: Ooh, that sounds like a superbly simpke example. I don't go to the movies, but there is a restaurant that sells a 16 oz soda for $1.25, or a 24 oz for $1.50. Ignoring the fact that I really want a 20 oz, I tended to pay the extra quarter at first. But lately, I decided a quarter is a quarter and refills are free, so I downsized to the stupid 16. I guess the easy upsell is the reason why that 16 sucks so much.

For more insightful graphs & Scattergrams:

[andrewsullivan.theatlantic.com]

@SuffolkHouse: That example is just plain awesome.