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."


  1. Can you give another example of non-linear pricing? Would a discount on a 6 month vs. 1 year subscription or any other unit discount based on bulk purchases count? By linear vs. non-linear my guess is you mean the slope of the total cost curve.

    Thanks for the great blog, I haven't purchased the book yet but intend to do so. I heard about you on NPR.

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