Friday, 22 January 2010

Price trickery with T-shirts

Ed Kless at Verasage presents an interesting retail pricing scenario and asks for suggestions. Best to read his post and look at the pictures before continuing, otherwise the following will not quite make sense.

If you're reading offline, here is his summary of three racks in a clothes shop:
The first offered two tee-shirts for $30 or $19.50 each.
The second, right next to it offered two tee-shirts for $30, but no mention of individual price and the third rack had individual tee-shirts for $15 each.
My thoughts:

I've noticed recently that a few places which charge "$N for two" will happily sell you a single one for $N/2. If there's no price for the single item then I imagine this would be the default policy.

I'd suggest that the existence of these two apparently redundant offers is metered price discrimination - capturing people with a higher willingness-to-pay by selling them an extra product rather than charging a higher unit price.

The $30 vs $19.50 just seems like a regular promotion, no mystery there.

So the question is whether the presence of the three racks alongside each other changes the dynamics of any individual rack. You didn't mention whether the products are significantly different but from the pictures I'll assume not.

I think the $30-for-two and $15-for-one racks probably support each other, by providing a cheaper option for people who only want to spend $15, while attempting to anchor better-off people to a default purchase of two shirts. If I were setting this price I'd make sure that the $30-for-two shirts were slightly different to the $15 singles. They wouldn't have to be objectively better than the singles, but if one range has stripes and the other has a texture (say) then people may project their own assumptions about quality onto the different products.

There are lots of behavioural experiments which show this kind of thing: if you sell people Mars bars and Snickers, and charge a higher price for Mars, they will like it more; while if you switch the pricing they'll mysteriously prefer the Snickers. No objective quality difference but people take the cognitive shortcut of assuming that higher price means higher value.

I don't know how the presence of the $30/$19 rack would affect this. Its role may simply be to confuse the consumer, so that they are more likely to be affected by subconscious cues than to make a rational calculation - which is exactly what the store wants.

Or it may be a bit more specific - about making the consumer assume that the $30-for-two shirts are actually the same as the $19.50 shirts, and therefore they are getting a discount by buying the pair; while actually they are identical to the $15 single shirts.

I am not entirely convinced that retailers always know what they're doing in this kind of situation. It may simply be random experimentation or even a supply-chain-driven decision. But I'd like to imagine they are making a calculated and cynical design choice, and we're being cunningly manipulated by the whole retail sector.

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