How Much Does That Cost? The Numerology of the Consumers Mind So, is that a deal?

Who among us, including the super-gurus, has not wondered after seeing price tags highlighting discounts or product labels highlighting extra volume? At that point, no one can resist doing some quick math. However, the math in consumerology is class different from the math we are familiar in our everyday lives. Lets try to list some of the rules of this dark mathematics (remember, this is not a universal science and it doesnt always work!): 1. Theres no objective reference point and its all a matter of comparison. If McDonalds can offer a hot-n-spicy McChicken for $1, Burger King should not charge more than that for its similar burger. If McDonalds sold a hot-n-spicy McChicken for $1 last month (as part of a deal), it is unacceptable to pay $1.25 now (when the deal ended). In an electronic supermarket, there are two 72 television sets (equivalent in features) kept side by side; one costs $1500 and the other costs $1100. This mere fact of side by side positioning for comparison alone would increase the likelihood of sale of the $1200 TV set. Now, imagine, there was another similar TV set with a price tag of $1300. Ironically, this would reduce the sale of the $1100 TV set. Equity theory, originally developed to understand fairness and unfairness in human relations, tries to address these and related issues in consumer behavior. 2. Consumers tend to maintain balance in their attitude towards market offerings Balance theory conceptualizes the consistency motive as a drive toward psychological balance. So, if I do not like an energy drink but my favorite cricket demigod keeps on appearing in the commercials and endorsing it, I might begin to like it and possibly buy it for the sake of mental comfort generating out of consistency. 3. For consumers, percentage of increase in product quantity is equal to percentage of decrease in price A little math would tell you that 10% more Surf for the regular price is a lesser proposition for a consumer than 10% off from regular price for the regular weight. Most folks dont get it. Savvy marketers do exploit this weakness very often, though. 4. The unrecoverable illusion of the last cent Even the dumbest person now knows that selling a product for $9.99 is a trick to mislead him. But, who wants to ignite his precious mental fuel for just a cent! Or, for a dollar when it is $999 Vs. $1000. But, for marketers, many such drops constitute a river (of profit). It is interesting to note that the same consumer who exaggerates the value of $9.99 over $10 undermines the value of $2.859 over $2.85 (typically, in gas stations). 5. Shipping costs, handling costs, No! Consumers are more willing to pay an eBay seller $100 for a camera if shipping, handling, etc., are included in that price than if they were to pay $90 for the camera plus shipping and handling. Even

though a lower price might entice them in the initial stages, such arousal suddenly gives way for reason and the purchase may be deferred. Especially when it comes to recurrent purchases, people dont want to have hassles: Amazon, like many other vendors, understands this mentality very well and has extended their subscribe and save offers to a large range of products. Here, consumers forgo the potential benefits of price reductions in the future and the chance of being able to buy newer products of course, they are saved from potential price increases. On a similar note, how many of us buy things just because we have a coupon or our credit cards offer miles or cash back for that purchase! 6. Outliers generate suspicion If a product is priced too low or too high in comparison with the other products meeting similar needs (whose prices revolve around an average), that generates credibility issues. In rare cases, overpricing might give the indication that a product is actually better (or, prestigious) than its competition. However, it is not for everyone and definitely this position cannot be achieved by overpricing overnight. Similarly, underpricing beyond a level is useless and might have the harmful implication of unacceptable quality. 7. Rebates and the magic of potential savings Many products are price tagged to reflect the final price after rebates meaning, the price discount he gets months after the consumer (potentially) fills out a lengthy form and mail it to the marketer. Remember, no emailing option or online forms for this. It would be interesting to research what percentage of buyers actually does this to save money. Yes, your loss is my gain! In many instances, addon warranty offers serve the same purpose. Car rental companies exploit a slightly different version of this strategy by scaring renters to buy their add-on insurance policies. Many employers know how the benefit of low premium multi-million life insurance policies can be used to increase the perceived value of their job offers. 8. Loosen the brains of your customers Loosely speaking, this is called the inversion of self. If you can trigger the playful brain of your customer, reason will take a nap. Make them buy your product when that happens. A touristy environment, alcohol, weed, etc., do this task very well. Door to door salesmen would tell you that it is easier to make sales in the afternoon than in the morning: the likely reason is that people are generally tired in the afternoons and wont apply similar intensity of thinking than if they were to buy the same product in the morning. Nothing mentioned above is written with the intention of tarnishing the buyer. In fact, no transaction takes place until the buyer and the seller agrees for a relationship whose embodification the agreed upon price is. Most buyers do go through a short phase of cognitive dissonance, but that is ephemeral at best. An iPhone buyer who paid $500 on the first day of its sale might not be dumber than another who got it for $250 after a year. They are not meeting the same river, for sure. In the ultimate analysis, satisfaction as a sense of achievement is purely subjective.

And there are many more. But, despite all that we know about the consumer psyche, our ability to manage it is still abysmally poor. May be, what we know is just the tip of an iceberg. Finally, can someone answer why Coke would price two half liter bottles together for $1.99 and one 1 liter bottle for $2.49? Or, why McDonalds would run the promotion of two McKinley sandwiches for $2.25 and one for $2.50?

Babu George The author is an associate professor of business administration in Alaska Pacific University, USA, and may be contacted at bgeorge@alaskapacific.edu