Thursday, February 25, 2010

CBS News Sunday Morning

I did a segment on shopping mall and restaurant prices for CBS News Sunday Morning, set to run this Sunday. Air times are here.

Wednesday, February 17, 2010

Offers You Can’t Refuse

Don't think of an elephant! Oops, you just did. As this demonstrates, there are some limits to what we like to call "free will." A largely robotic, automatic part of our minds helps determine what we think about and what we notice. Some tricks of psychological pricing exploit this. They present offers you can't refuse.
Take a look at this sign advertising a hand soap and sanitizer, at an upscale mall in California. The soap is $3 a bottle… or, buy three bottles and they'll toss in two more for "free." Most shoppers would be inclined to buy a bottle or two. But the offer-you-can't-refuse makes you feel like a complete fool for buying two. Buy one or two, and you're paying $3 a bottle. Buy three, for $9, and they give you five, resulting in a cost of $1.80 a bottle. So practically everyone walks out the door with five bottles. The store expects that and factors it into the price.
One reason the trick works is that shoppers know they can always use more soap. (It wouldn't likely work with wedding gowns or coffins.) Were this a big-box store like Sam's Club or Costco, customers might have bought a six- or twelve-pack of hand soap without batting an eye. But this sign is in front of a shop surrounded by high-priced boutiques. In that context, the natural impulse is to buy one or two bottles, as if it were a precious perfume or vintage wine. Instead, the promotion prods shoppers to think, "well, I can always use more soap." They can't not think that, any more than they can not think of the elephant.
Price consultants call this tactic "nonlinear pricing." The price per bottle drops, provided you buy more… more than you probably intended to buy. It's an incredibly effective tactic, used by businesses ranging from cell phone companies (with their flat-rate plans) to all-you-can-eat restaurants.
America is the land of the free. We have free will, free speech, free enterprise — and sometimes free hand sanitizer. The way that freedom plays out is constrained by the quirks of human decision making. No store can order us to buy five bottles of soap. But with the unrefusable offers of price psychology, they don't have to do that. In many cases, the thriftiest shopper can be persuaded to spend more — all in the name of "saving money."

Friday, February 5, 2010

Buy Buttons Are Back

Amazon has just restored the buy button for Priceless and at least some other Macmillan titles. I checked Wolf Hall and my own Macmillan-imprint books.

Monday, February 1, 2010

“Priceless” is Priceless, on Amazon

As you may have heard, a dispute over pricing of eBooks caused Amazon to stop selling all Macmillan books, electronic or not, this past weekend. That includes Priceless, in "a move not without humor," as blogger Peter Kelton notes. At issue is the charm price of $9.99 Amazon is using for eBooks. Amazon is said to be losing money on every eBook sold, in order to promote its Kindle. Publishers are uneasy about that, fearing it will create pressure to lower prices to unprofitable levels. That, combined with the "information wants to be free" ethos, leaves them feeling a bit like the Russian aristocracy before the revolution. The Apple iPad announcement brought matters to a head: Apple will let publishers charge higher prices such as $12.99 and $14.99 (still charm prices, you'll note).
The publishing world viewed Amazon v. Macmillan as a game of chicken: Amazon needs to carry all publishers' books as much as all publishers need to be carried by Amazon. As of this morning, the standoff has reportedly been settled in the publishers' favor. Amazon is promising to match Apple's pricing and restore the sale buttons to the delisted titles.
How much should eBooks cost? I suspect I'm not too different from most avid readers in feeling this way:

• If all books were free, I wouldn't read any more than I read now. My reading is limited by time and interest, not the cost of books.
• If books cost twice what they do now, I wouldn't read any less than I do now.
• Of course, there must be some price so high that it would cause even me to cut back on reading. I haven't a clue what that price is.

Priceless is collateral damage in all this. It is not presently available in an eBook, and there's no word from the publisher when it will be. Kelton reports that third-party sellers are offering Priceless at prices ranging from under the (former) Amazon price to $155.75. The latter is from a seller called Origin, which promises "Excellent customer service!"