Answer by Mira Zaslove:
Retailers use all kind of tricks, to get people to spend more money. At the grocery store, we get smaller and smaller packaging- all for the same price. And the stuff we came to the store for (the milk) is all the way at the back of the store, and the stuff we don't need (the latest tabloid) is right at the front.
How much money people spend is often influenced by the context, and set of alternatives under consideration.
A few of my favorites:
The Anchor Decoy
A highly priced product that is not intended to sell. Rather, the retailer uses it to make the other products look attractive by comparison. The anchor decoy gets people to spend more money, by NOT buying it. For instance, when Williams-Sonoma introduced a breadmaker for $279, it wasn't selling. They thought that customers may have wanted a bigger and fancier model. In anticipation of selling larger bread makers, they began selling a $429 model.
And guess what happened? The costly model flopped. But sales of the cheaper one doubled. This is the anchor decoy. When Williams-Sonoma only sold the $279 bread maker it looked expensive. However, when a $429 model came out, with just slightly fewer features, all of a sudden the $279 looked like a bargain, and sales picked up.
(Source: by William Poundstone)
Exclusivity and the Veblen Good
Some people will always gravitate towards the highest priced items, so the anchor decoy also takes advantage of another psychological trick. The exclusivity principle dictates that some customers will always buy the $429 model. These customers are status conscious, and will pay the price, no matter how high. This product is often referred to as a . Retailers often exploit this strategy, and increase prices on luxury items to increase that high status and perception of exclusivity, and therefore sales.
Retailing wisdom holds that Rolex began selling more watches when they increased the price, and the status of their product.
Most customers shy away from the lowest priced items. We don't want to be cheap, and associate the lowest price item with poor quality. Yet, unless we are that Veblen customer, we also don't want to pay too much and buy the most expensive. So typically, for retailers the best way to trick us into automatically picking an item, is to make it the middle priced item.
For example, when consumers were offered 2 kinds of beer: premium beer for $2.50 and bargain beer for $1.80. Around 80% chose the more expensive beer. When a third beer was introduced, a bargain beer for $1.60, 80% bought the $1.80 beer and 20% $2.50 beer. Nobody bought the cheapest option.
Third time around, they removed the $1.60 beer and replaced it with a premium $3.40 beer. Most people chose the $2.50 beer, a small number $1.80 beer and arounf 10% opted for the most expensive $3.40 beer.
That Magic Number 9
In eight studies published from 1987 to 2004 prices ending in the magic number 9 ($49, $79, $1.49 and so on) were reported to boost sales by an average of 24% (as per ).
In an experiment done by University of Chicago and MIT, a mail order catalog was printed in 3 different versions. An item was tested, with the control price set at $39. In experimental versions of the catalog, the company offered the same item for $34 and $44. Each catalog was sent to an identically sized sample.
There were more sales at the price of $39 than at either of the other prices, including the cheaper $34.
Everyone Loves a Deal
Sale & discount prices appear to be the most magical trick of all. Everyone loves a deal, and will often buy products just because they are on sale. As writes, he worked for a store that sold out jackets, "putting a marked down sticker to $150 on each jacket with another red mark down tag to $99."
Researchers can take advantage of these tricks with the following price tag: