As I've previously mentioned, in addition to programming, I've long been fascinated by what I call practical psychology, that is, the means of affecting another person, without making an apparent or direct effort to do so.
In this piece I'm dabbling into pricing and money is a topic close to the heart for many Finns. We are notably
frugalcheap. Ask Joe Average (or, perhaps more suitably, Pekka Average), and he'll definitely choose price over quality any day. This probably applies to many people all over the world, but especially for us Finns.
There's a tendency that I've noticed in real life, and I wonder if it's just me, or is there something to it.
"Imagine yourself thirsty for whatever refreshing beverage you like the most. You walk up to the bar, and you're presented with a price list:" (ps: one liter is roughly one fluid quart)
- 0.2L for 1.00€
- 0.4L for 2.00€
- 0.6L for 3.00€
Which would you choose? ...Are you sure? Okay, think about why and remember it.
"Oops!" says the barkeep. "Sorry, this were the prices for yesterday. Here, this is the current price list, sorry about the mixup:"
- 0.2L for 2.00€
- 0.4L for 2.50€
- 0.6L for 3.00€
Ignoring the sudden anger because of the jump in prices, you'd still be thirsty and want that beverage. So, which one did you choose now? Was it the same as with the previous price list?
My theory is that the latter price list encourages people to buy a larger cup than the first list. That's because, largely thanks to the algebra-centric math education in schools, the brain recognizes and emphasizes the price-to-value ratio: You pay x to get n amount of y — solve for lowest x/n.
In the first case, the ratio is a constant 5, or 5€ to the liter. In this case, what matters is how thirsty you are versus how much you want to spend. Rational, isn't it?
In the second case, however, something happens. First of all, the ratio isn't constant, but it drops: 10€/L, 7.5€/L and 5€/L, respectively. The second enforcer is the thought of "it's a mere 50 cents to double the cup size". It's easier to lean towards the larger cup, because that's where the "sweet spot" is.
The second case downplays the real question: "how thirsty am I?" If your thirst is quenched by two deciliters (about a glassful) of soda, then that's all you need, right? Whether that two deciliters costs 1€ or 10€ it doesn't affect the effectiveness of a liquid rehydrating a person. Instead, we might be inclined to stick it to them, so to say, by buying the option with the best price-to-value ratio.
Herein lies the gist: It doesn't really matter that the relatively more expesive 0.2L would have a greater percentual markup for the seller. You only have so many customers a day, so you can't really play the percentages game here. The catch is that the absolute markup is higher in the larger cups. Maybe only a few cents, but it's there; as long as the increase of soda concentrate + carbonated water costs less than the price jump, the seller wins.
Now, I've gone to the movies a lot of times, and see these kinds of prices all the time (although, perhaps not in these exaggerated proportions). Even though I can ignore my algebraically sound mind, it still pains me to pay a relatively high price for the small cup. Somehow, I always want to get the larger one, with the "better price". To me, at least, this proves that there is some practical psychology hidden somewhere.
If you had any kind of hesitation whatsoever over whether to get the bigger cup with the second price list, this should be enough to prove the working practical psychology in action. So, how did you pick? I'm very interested in hearing what others think about this.
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