The Frontal Cortex

The Psychology of the Sale

I was doing my grocery shopping yesterday when I stumbled upon a discount that I assumed was a clerical mistake: some fancy olive oil had been reduced from $23 to $9. Needless to say, I immediately put a bottle in my cart, even though I didn’t need another bottle of olive oil.

But then, just a few minutes later, I began to wonder: why was the olive oil so drastically reduced in price? Is something wrong with it? What isn’t Whole Foods telling me? That nagging suspicion – and I’m sure it was completely unfounded – was enough for me to put the bottle back on the shelf. It was too good a deal.

My perverse behavior illustrates something interesting about consumers. In general, people rely on a simple heuristic, or mental short-cut, when trying to evaluate the quality of a product: we assume that more expensive things are of higher quality. In other words, you get what you pay for. As a result, we automatically suspect products on sale of being faulty, or inferior. And because our expectations profoundly influence our experience, an olive oil that we expect to be lower in quality will actually taste lower in quality.

Look, for example, at this witty little experiment, which I describe in my book. Baba Shiv, a neuroeconomist at Stanford, supplied a group of people with Sobe Adrenaline Rush, an “energy” drink that was supposed to make them feel more alert and energetic. (The drink contained a potent brew of sugar and caffeine which, the bottle promised, would impart “superior functionality”). Some participants paid full price for the drinks, while others were offered a discount. The participants were then asked to solve a series of word puzzles. Shiv found that people who paid discounted prices consistently solved about thirty percent fewer puzzles than the people who paid full price for the drinks. The subjects were convinced that the stuff on sale was much less potent, even though all the drinks were identical.

Why did the cheaper energy drink prove less effective? According to Shiv, consumers typically suffer from a version of the placebo effect. Since we expect cheaper goods to be less effective, they generally are less effective, even if they are identical to more expensive products. This is why brand-name aspirin works better than generic aspirin, or why Coke tastes better than cheaper colas, even if most consumers can’t tell the difference in blind taste tests. “We have these general beliefs about the world⎯for example, that cheaper products are of lower quality⎯and they translate into specific expectations about specific products,” said Shiv. “Then, once these expectations are activated, they start to really impact our behavior.

Over time, the presence of sales can really diminish a brand. I used to buy all my clothes at the Gap – I’m stuck with the fashion sense of an 8 year old boy – but, starting a few years ago, I noticed that everything at the Gap appeared to be on sale. This is problematic for two reasons: 1) It triggers deflationary expectations – why buy the t-shirt now when you can buy the same t-shirt for less in two weeks, after yet another “final” sale? and 2) It erodes the quality of the brand, at least as perceived by consumers. I implicitly assume that Gap has to put t-shirts on sale because they’re of lower quality, when the actual reason might have to do with the overproduction of some factory in Turkey, or an inventory accounting rule, or some other banal corporate mistake. Nevertheless, the sale has had a psychological impact – I associate the brand with stuff people don’t like. There must be a reason why that shirt is so cheap and why the price of that olive oil has been slashed.

For comparison, look at American Apparel. Have you ever seen an American Apparel store advertise a sale in the window? Or slash the price of their t-shirts? I thought not. They know that they are in the perception business, and that how we perceive a t-shirt depends on many other factors that have nothing do with the quality of cotton. Sometimes, the easiest way to make the consumer happier with a purchase is to increase the price.

Comments

  1. #1 peter Holstein
    April 22, 2009

    Ummmm, duh – didn’t the Toni permanent guys figure this one out like, 60 years ago?

  2. #2 humorix
    April 22, 2009

    Why do not the least dear products have nice tabs? The price of the red or the blue or the green is the same. You buy advertising. The similar for the clothes of big marks which are in China by dint of the others. It is swindle. As ‘ climatic warming ‘

    There is thousands of sites to scare the population to sell stupidity and make die from thousands of persons every day. Lately: it is the sun on “ABCNews” which should grill everybody this summer! Idiocy as in “HuffingtonPost” every day.

  3. #3 tom brakke
    April 22, 2009

    There’s a direct line from this post to how people think about investments. Growth stocks (academics often refer to them as “glamour stocks” in their research) are those with fancy valuations; studies have consistently shown that as a group they perform worse than value stocks, those that don’t suffer the burden of high expectations. The interesting thing is that many investors continue to favor the sexy and pricey despite the evidence.

  4. #4 Charles Jacobs
    April 22, 2009

    What I find most interesting is that even though you knew the mind would be primed by the lower price to falsely expect inferior taste, you still put the olive oil back. Even our knowledge of such psychological effects isn’t enough to always overcome them. It certainly demolishes the notion that the conscious mind is in charge.

  5. #5 Connie
    April 22, 2009

    Interesting. I dig hard for low prices on brands I trust for quality. For instance, Kohl’s will almost always have Arrow long sleeve dress shirts on clearance for about $10 in April when they’re making room for short sleeve shirts. Perhaps being “frugal” causes me to look at things a bit differently. Regarding the olive oil, I typically buy olive oil for cooking at Big Lots. Never had an issue with it. However, when I was buying ingredients to make pesto, I decided to go with the priciest brand in a local store since the oil is such a large part of the taste. When I got home I poured some of each oil into 2 shot glasses and asked my wife to taste each. While she tasted a small difference, she couldn’t claim a preference for either. I’m still buying olive oil at Big Lots.

  6. #6 zeolite
    April 22, 2009

    This post makes me think of the defect outlets store near my home town – where brand name stores sell shirts with one sleeve slightly longer than the other, jeans that were dyed wonky, sweatshirts and hats with mess up embroidery, etc.

    I remember those places were always packed with customers – it seems like it helps to know what the defect is that lowers the price. Like the negative stigma of the lower price is removed if know why its cheap. Like with the reduced price olive oil that made you wonder is there something wrong with it. What if you new that the reason it was so cheap was because the label was misprinted – would that remove your hesitation to buy it?

  7. #7 Sarah
    April 22, 2009

    Heuristics and stereotypes typically come about because they are true the majority of the time. Somehow through our shopping experiences we pick up on the fact that higher prices tend to be correlated with higher quality. If all retailers always marked up prices just to get customers more interested, then it wouldn’t work.

    I’m not trying to discount the interesting interplay between expectations and perceptions, just pointing out that those expectations have been put in place somehow.

  8. #8 Anibal
    April 22, 2009

    But, where is supposed to come from the rudiments of our homo consumericus´mind?

    In the savannah even didn´t exist the roots for what we now call “markets”, “prices”, “money”…

    What is the evolutionary road for our identification price=quality?

    And what would happen when technology (nanobots design to clean garmets were ready)creates quirks in our consumer psychology

  9. #9 Michael Martin
    April 22, 2009

    I find many that many weird things happen at Whole Foods wrt pricing. A case of plastic bottle Pelegrino is a full $10 more than at the grocery store, yet a case of no-sugar protein bars is $5 less. In the case of the olive oil, I would have asked the clerk if there was a mistake in the pricing and would have bought it if it was priced correctly at $9.

  10. #10 Leila
    April 22, 2009

    Condom distribution programs have learned from the skepticism you describe when putting the olive oil back on the shelf. People don’t trust free condoms. So reproductive health advocates, like the Planned Parenthood Association of Ghana’s Young and Wise program and probably groups in the US as well, charge a small amount—cheap enough to be almost free but not ACTUALLY free and are able to sell more condoms then they could give away.

  11. #11 Steve Genco
    April 22, 2009

    It looks like priming is key to the shopping experience. Take a look at a very intriguing series of studies by Tanya Chartrand and Baba Shiv (mentioned in your post) on “nonconscious goals and consumer choice” (Journal of Consumer Research, 2008).

    How you responded to the olive oil may have been influenced by the extent to which that shopping trip was associated with different goals – being thrifty, being extravagant, buying healthy, etc.

    Chartrand et al. found that if they primed subjects with “thrifty” words in a prior, supposedly unrelated sentence unscrambling task, people would be more than twice as likely to select inexpensive Hanes socks vs. expensive Nike socks in a later hypothetical product choice task. And this effect was amplified the longer the delay between the priming and the choosing!

    They speculate that implicit goal activation can be done in clever ways in a store. For example, if you want to prime prestige over practical brands, show posters that represent prestige near the entrance of the store. The prestige objects in the poster don’t have to be at all related to the items or product categories on the shelf. They just prime that general goal state. And the longer the delay before the shopper gets to his/her choice opportunity, the greater the effect will be.

    At my research company, Lucid Systems, we use these kinds of dynamics to measure things like brand equity and the effectiveness of advertising. Rather than prime someone with “prestige” to get them to buy a more prestige brand, we flip the model around and prime them with brands and products and see how these primes differentially activate different conceptual networks, like prestige, thriftiness, practicality, originality, creativity, etc.

    What are brands, really, but more or less effective primes? And why not test that effect directly, rather than ask people about effects they may not even be able to verbalize?

    Sorry for the gratuitous self-promotion, but wanted to make the point that these new insights coming out of Chartrand, Shiv and others have real, practical implications that are flowing into the commercial research realm. It’s a great time to be doing consumer research with these new techniques.

  12. #12 paul schulman
    April 22, 2009

    Leon Festinger did a similar experiment. He simply altered the price; people preferred the more expensive item and, if I recall, were more likely to buy it again.

  13. #13 Andrew
    April 22, 2009

    Why not just ask the reason for the reduction? Usually its shelf space, or sales related.

    Use reason…

  14. #14 Doug Alder
    April 22, 2009

    I have to side with Connie on this – I too dig for specials on name brands, or for that matter any brand I’ve cone to trust/like – and the price I get it at has no effect on my like/dislike of that brand going forward. Then again I’m an avid label reader (as diabetics must be) so I pay attention to far more than the pretty display and/or price in food markets. I never buy brand name Ibuprofen or Acetaminophen – why would you pay $3, $4, $5 a bottle more for exactly the same ingredients in the same proportions? Makes no sense to me. Clothing? Well my wife now buys mine for me as I have absolutely no “taste” she says – LOL – Of course I remind her at those times that I chose her [evil grin]

  15. Well, I’ve just found out that I’m not a ‘normal’ client. If I see something branded ‘on sale’ I just try to find out the expiration date (if food) or composition (if cloth) then compare this product to similar ones. If everything is ok – I just buy it… If I need it, of course (I’m not bargain hunter). I don’t have ‘it-must-be-worse’ effect, I guess.

  16. #16 Paul
    April 23, 2009

    Penn and Teller’s Bullshit program has done at least two segments that encapsulate this component of socially created reality very well. One was in a fancy restaurant with a “water steward” serving couples “fancy” artisan waters from different parts of the world. The people espoused the subtle flavor differences of the various waters. Of course, all the water was coming out of the garden hose in the back of the restaurant. Another segment was the same setup, only with “fine” food served in (the same) fancy restaurant. The food was super cheapo frozen dinners, generic brand miracle whip, and so on. Most of the people it was served to carried on about how wonderful the food was. One guy looked like he had his doubts, but didn’t say anything (at least didn’t say anything that wasn’t edited out).

    This is also the reason brands like Apple almost never have a sale.

  17. #17 jim emerson
    April 24, 2009

    Jonah: What’s your take on this article from today’s NY Times about Abercrombie & Fitch pricing themselves out of the malls?

    http://www.nytimes.com/2009/04/23/fashion/23TEENS.html

  18. #18 Ilana
    April 24, 2009

    One of my greatest joys in life is finding and buying high quality items at clearance prices. I have learned, through experience, that price is not an indicator of value. I pay attention to the actual content – ingredients, how it was manufactured, etc. etc. – and I base my decisions on that. It took time and personal effort to achieve this. Most of us are on “automatic”, programmed by the media, commercials (which I used to produce) and peer pressures. Trust me, it’s worth the time and effort to get off the mainstream media superhighway and learn how to think for yourself :-)
    Thanks for this article, I found it useful…

  19. #19 llewelly
    April 25, 2009

    I am of the opinion that a great many sales have nothing whatever to do with either product quality, or bureaucratic errors. Some of them are purely artificial price fluctuations meant to draw attention to a product. Others are primarily side-effects of inventory control.

    I suspect the $23 olive oil for $9 is probably a sign error, and you would have gotten rung up for $23 at the checkout. But there was one grocery store I frequented for a time in Washington, which occasionally drop the prices on a bunch of their $20+ wines to $9 a bottle. (And I can’t help but add that in my experience, for both wine and olive oil, picking a $20+ bottle is not significantly more likely to net you a better product than picking a $9 bottle.)

  20. #20 llewelly
    April 25, 2009

    What is the evolutionary road for our identification price=quality?

    Why assume that it is hereditary? We are, after all, bombarded with messages that tell us higher price == higher quality. Words like ‘cheap’, ‘budget’, ‘cut-rate’, etc, are derogatory. The connection could be a learned behavior.

  21. #21 David Kerlick
    April 28, 2009

    Why would ANYONE buy planet-destroying bottled water for 3000-4000 times the price
    of good tap water, especially in New York City, whose tap water is the best in taste tests year after year? Paying the price premium buys you “membership in an elite group” like the impossibly beautiful fashion models who pour Evian over themselves!!

  22. #22 Magnetic Assemblies
    May 8, 2009

    dig hard for low prices on brands I trust for quality.

  23. #23 Greg Woodley
    May 22, 2009

    Hi Jonah,
    not quite what I thought I was going to read about when I saw the title.
    Interesting concept though.
    In this times of economic slowdown it would be tempting for salespeople to lower their prices perhaps triggering the very concept you refer to?
    Greg

  24. #24 Todd Michaels
    October 23, 2009

    Hmmm…
    I would have to agree with one post in particular on this subject.
    People are suspicious in nature and anything usually being to good to be true is. Uncertainty causes fear and naturally when fearful we revert to our old habits to protect ourselves. A brand name is comfortable for many people so they take comfort in the name. I don’t think people are buying names. People are buying comfort.
    This world holds a price for any product or service. If the price seems low we must question the motivation behind it. This is actually a reflection of people as a whole. We will not trust someone who does something to help there must always be a gain or profit. Naturally, even helping someone with anything (money or crossing the street) short of holding the door will cause eyebrows to raise.
    “What do they want?” is the question.
    This may appear to be far fetched but I believe the psychology of brand names gives us the comfort of security we lack as a society.

  25. #25 barryh
    May 15, 2010

    I agree with Andrew (#13) – use reason. There are certain ‘brand name’ items I refuse to buy even if on sale. Why? The regular price is way over-inflated for the item without and associated perceived increase in quality (especially when item is made in certain foreign countries). And if or when the item goes on sale, the prices again is too high for the perceived quality.

    I date a person that would buy red onions when preparing a dish that required onions. When I asked why the response was red onions cost more so they must be better. There was no thought given to the difference in flavor for different dishes.

    My philosophy: look for value and quality combined. There are some ‘brands’ that recognize this and strive to give both. Example: I will not buy cheap house paint. Why? Because cheap house paint is just that cheap! It is a pain to paint a house so I want something that has long term value to last a while. And I’m willing to pay for the quality and the values. That’s shopping smart!

  26. #26 Van
    October 5, 2010

    So, I understand about the idea of more expensive being better quality and people preferring this rather then cheaper and lower end quality products. But, what about auto insurance quotes. People prefer to go with cheaper companies, rather then high end insurance companies that have a better product??? Very curious.

  27. #27 Remedies of Psychology
    December 13, 2010

    As noted by another commenter, even after you pondered the thoughts of your own knowledge, you still put the olive oil back.
    This is an interesting quandary that I have noted in my long sales career. Even when using well known sales tactics on an experienced sales person they still respond to the tactic in an expected way.
    Many times they will even comment, “I know what you`re doing”; all the while responding accordingly.
    I think the important thing to understand is that while we will most often respond in an instinctual way, we do have the power with-in us to choose a different response.
    I.E. You could have chosen to override your instinct to put back the olive oil in which case you would have likely then responded with a different instinct. One in which justify your choice. Perhaps you would have prided yourself in your good fortune, for example.

  28. #28 Barbara Lond
    August 27, 2011

    There is more to consumer psychology to answer some of the above. People differ in many respects especially in their decision-making processes. Also, the context of buying is important, for example time pressure which affects motivations and decision of buyers. Psychologists know what works as they research these areas. For example, there is something called a “need for closure” (the degree to which you need to finish with a decision process and take an action). People differ in this regard – some people like to think for a long time before making a choice, while other people like to make choices quickly. This then influences their motivation to act. A low need for closure creates a mindset for deliberation, where people think a lot about a purchase, whereas a high need for closure creates a mindset for action.
    Time pressure for example is created where retailers offer discounts which are time-limited for example. This then creates a high need for closure for some people. Other factors which give the impression of needing to act quickly push people into an action mindset. The difference comes in where people use information differently to make decisions. People with a “deliberation” (think a lot) mindset will focus on comparing a variety of products. The products also make a difference as to whether they are expensive or cheap (and therefore are ‘high’ or ‘low’ involvement products), and affect how people make decisions. Expensive products need more thought so people tend to think carefully about their decisions for these products. Low involvement, cheap products have the opposite effect. The high need for closure is important here again (especially in high pressure situations). People with a need for high closure don’t think carefully about high involvement products and they act quickly to get a good deal.

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