Why You Over Spend - For Everything
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We don't know too much about how to evaluate consumer goods, investments or franchises.
(Well, I lie. I know a lot about how to evaluate the purchase of franchise. But on consumer goods and investments, I am pretty much clueless.)
My ignorance is why I welcome the fourth edition of Cialdini's "Influence, Science and Practice." The new edition provides new academic references and some practical examples from his readers, the "Reader's Reports."
These additions are welcome for the reader who constantly goes back to Cialdini for insight on persuasion - including apparently, Charlie Munger.
Reading the fourth edition, I was struck by how little I really knew or understood about even this first example of what Cialdini calls a "click whirr" purchasing action, a learned but automatic decision.
I really am a terrible student. Bright, but an awful student.
Here is the first example in Cialdini's, which is constant through out all editions:
"I got a phone call from a friend who recently opened an Indian jewelry store in Arizona. She was giddy with a curious piece of news. Something fascinating had just happened, and she thought, as a psychologist, I might be able to explain it to her. The story involved allotment of turquoise jewelry she had been having trouble selling.It was the peak of the tourist season, the store was unusually full of customers, the turquoise pieces were of good quality fore the prices she was asking; yet they had not sold.
My friend had attempted a couple of standard sales trick to get them moving.
She tried calling attention to them by shifting their location to a central display area; no luck.
She even told her sales staff to "push" the times hard - agains without success.
Finally, the night before before leaving on an out-of-town buying trip, she scribbled an exasperated note to her saleswoman, "Everything in this display case, price x 1/2", hoping just to be rid of the offending pieces, even if at a loss.
When she returned a fews days later, she was not surprised to to find that every article had been sold.
She was shocked, though, to discover that, because the employee had read the 1/2 in her scrawled messages as "2", the entire allotment had sold at twice the original price."
When I first read this, I mistakenly thought the the price tags had remained the same, but that there was a large sign over the gems which announced that the displayed prices should be doubled. (Neat ruse which would violate Federal Law.)
The example puzzled me until I realized that the displayed prices had been doubled by the staff. Silly me.
Cialdini explains that
"The customers, most well-to-do vacationers with little knowledge of turquoise, were using a standard principle -a stereotype- to guide their buying: expensive = good."
But, now I was even more puzzled.
Did the rest of the items in the store not sell because they were now too expensive?
How is that a good deal for the owner?
We know that the contrast principle predicts that more people will buy a more expensive item when that item is shown with a slightly less expensive item and a cheap item, than with the cheap item alone. Is that what happened here?
How could just doubling the price of one set of item effect their sales - because they were now more expensive, and not effect the other now cheaper items?
I suggest that we call in Paco Underhill to solve this problem, the Thomas Schelling of retail philosophy with his insistence on why geography matters to retail.
