Thursday, October 29, 2009

“Artisanal”: A Word That’ll Cost You

How much is a word worth? If the word is "artisanal," a lot. Try pricing artisanal chocolates or artisanal jeans. Studio D'Artisan jeans run $350, while some R by 45RPM models can still top $1000, even in these chastened times. The word "artisanal" also works its magic on menus and in markets. Foodies will insist that "artisanal" is a meaningful distinction in danger of being overused. That ship has sailed. The "artisanal" bread on some of Jack in the Box's sandwiches has "become a huge hit with the burgers-and-fries crowd," crowed a 2004 press release. Diet conscious? Weight Watchers has "Artisan" pizza. You'll find it in your grocer's frozen-food aisle.

What does "artisanal" mean, anyway? For one thing, it means the seller can charge more money. Psychological studies have refuted the longtime economic notion of a "reserve price," a fixed maximum one is willing to pay for something. Is $8 reasonable price for a box of chocolates, or is $80? The answer will depend on the context: how nice a box it's in, what we see other people buying, and so on. Above all, we rely on memory. In deciding whether $80 is too much to pay for chocolates, I remember the prices I've seen advertised and what I paid the last time. Remembered prices allow us to impose a veneer of rationality and consistency on our money decisions. Inside, we're more like kids in a candy store. We want what we want, and we haven't a clue what it should cost.
That's where a word like "artisanal" comes in. Its sends the message, remembered prices don't count. "Artisanal" jeans are different from plain old jeans. Therefore, the old prices don't apply. The consumer is left guessing at what a fair price might be. Influenced by context (stores are all about context) many choose to pay a price that has little to do with the cost of materials and labor. Eric Wilson, in The New York Times, wrote

During the modern gilded age, the spiraling prices of designer clothes had more to do with driving profits than the actual design or construction of a garment. Designers found they could charge a lot for the perception of prestige. Dresses and suits and handbags were priced like cars, and consumers didn’t blink. But with jeans, it just felt more obvious that some kind of game was being played; the basic elements, after all, had not changed substantially in decades: five pockets, cotton, some rivets.

Don't get me wrong: Many "artisanal" products are truly superior. The term's adoption by frozen and fast-food producers suggests it's also smart marketing. Jack in the Box charges more for its artisanal-bread sandwiches than for more meat-intensive burgers.
Why has "artisanal" been so widely adopted? Probably because it's one of those poetic terms (like "creamery" butter and "heirloom" tomatoes) that sounds great without making much of a factual claim. An artisan is someone who makes something, so "artisanal" can basically apply to anything made by humans. It's therefore become the all-purpose excuse for charging a premium.

Sunday, October 11, 2009

“10 for $10”

Price labels like this have become a sign of the Great Recession. You're invited to buy ten of something for $10. Small print says "$1.00 each." Huh? That's right, there's no discount for buying ten items. So what's the point?
Rest assured that supermarkets must have reason to believe that these labels boost sales. The question is, how? I'm not aware of any academic papers directly addressing 10/$10 pricing. Two ideas come to mind.
One is that it's a twist on the old "economy size" tactic. Many shoppers instinctively reach for the bigger package — or shop at the big box store — in the belief that they're getting a better deal. Sometimes they are, and sometimes they aren't. In this case, shoppers might lob ten cans into their cart and never read the fine print.
I doubt too many people do that, though. It seems that 10-for-$10 pricing is mostly applied when you wouldn't normally buy ten of an item. I don't think I've ever bought ten cans of anything, save soft drinks. My impulse would be to scrutinize the label to see whether you can buy less than ten at the special price — which you can.
An alternate explanation for 10/$10 prices is anchoring, the cognitive phenomenon described by Amos Tversky and Daniel Kahneman in the 1970s. Anchoring occurs when we guesstimate numerical quantities. Shoppers do that a lot. The shopper must decide, how much should I pay? and how many should I buy? Strict logic cannot answer such questions. The answer is necessarily intuitive (and often, must be made while wrestling kids or yakking on the cellphone). It's been shown that when people have to come up with a numerical estimate on intuitive grounds, they are easily swayed by any numbers provided as cues (or "anchors.") With 10/$10 pricing, the suggested ten items becomes an anchor. It sends the subtle message, of course you need ten cans of salsa this week! On the face of it, that sounds ridiculous. But anchoring exerts an effect even when we know the cue is absurd.
One of the most amusing anchoring experiments, by Karen Jacowitz and Daniel Kahneman, asked a group of subjects this two-part question:

(a) Does the average American eat more or less than 50 pounds of meat a year?
(b) How much meat does the average American eat in a year?

The group's median answer was 100 pounds of meat. The researchers asked a separate group a similar question, except that this time, part (a) asked whether the average American ate more or less than 1000 pounds of meat. For this group, the median estimate was 500 pounds. Just hearing a different cue — 1000 rather than 50 pounds — boosted the group's estimate five-fold. Furthermore, anyone who thought about it could have calculated that 1000 pounds was a ridiculous answer. It would be the equivalent of ten McDonald's Quarter-Pounders a day! The ridiculous anchor value still had a huge statistical effect on answers.
In the experiment, the subjects were simply guessing the answer to a trivia question. Shoppers guess too in estimating how many cans of salsa their family will eat. It's possible that 10-for-$10 pricing has an effect similar to the cues in Jacowitz and Kahneman's experiment. It makes shoppers buy more items than they would have.

Jacowitz, Karen E., and Daniel Kahneman (1995). “Measuring of anchoring in estimation tasks.” Personality and Social Psychology Bulletin 21, 1161-1166.