Rory Sutherland Columnist Feel-good factor T technically illegal experiment shows is that isnt the case at all. They here are a few fine exceptions Volkswagens like the feel of a deal. Those three for 8 deals at M&S do you Surprisingly ordinary prices campaign, for example. add up the cost of the three items first? Me neither. Or Aldis Like brands, only cheaper. But there are This brings me to Black Friday. A Which? report found that very markedly few great campaigns promoting low prices. few items are actually on sale on that date for a lower price than at This dearth of such work may reveal a wider misconception: that it some other point in the year. Prices are often ramped up takes a lot of work to build premium brands, whereas low prices beforehand and reduced with great fanfare. In purely economic speak for themselves. terms, Black Friday aint all that great. As I am writing this, an I dont think they do. email arrived from a pen company oering two free refills if I Until a few years ago, I had always wanted to test something spend 100 on pens. Seriously? which would have been completely unethical, not to mention illegal. But that, I think, bears out my point. Black Friday succeeds I wanted to put 50% extra free on an item on sale in the shops eectively by creating emotional excitement around the idea of and then increase the price by 50% to see what the eect would be bargain hunting, rather than through real economic discounting. on sales. I wanted to see how much of the uplift was created by an It is a time-limited festival of fomo combined with other potent actual reduction in price, and how much by the implication that emotional cues: theres a lot of social proof with many people there was a deal on oer even in the absence of any material shopping simultaneously, creating the fear that if I dont buy that reduction. To perfect the experiment, you would also test an 100 pen, someone else will. Its the identical product that was 50% bigger at razzmatazz thats driving behaviour more the original price, in the absence of any than the savings themselves. Similarly, if promotional flash. Harrods reduced its prices by 50%, but Obviously, it was impossible to perform Black Friday is a time-limited didnt tell anybody, I think the uplift in this experiment. But thankfully, someone festival of fomo combined sales would be remarkably small. What I met at a dinner did the job for me. I had with other potent makes the sale work are the queues explained that I wanted to know what emotional cues outside, the bags with sale on and the part of the uplift from promotions was narrow window of opportunity. emotional not economic, only for him to The psychology of low prices is just as reply: I do know the answer to that interesting as the psychology of high price. Fifteen or so years ago, question. He had worked for a very large, packaged goods KFC in Australia was selling chips for $1, in a limited time company, which will remain nameless. As he explained: A few promotion. The most eective way it found of promoting this was times a year, of all the thousands of promotions we run, once or by imposing a limit: maximum four per customer. Exploiting the twice we mistakenly put the price up by 50% on an item which idea of scarcity made the promotion seem much more valuable. says 50% extra free. In many cases, businesses are guilty of reducing prices, expecting Wow, I said, hoping naively for some data. Im not going to consumers to care or notice. Yet, in most cases, unless you make a share the data with you, obviously, he went on. But you wouldnt noise, they really dont. Consequently, much of the eort believe how much money we make. So, even though I could never businesses put into achieving operational eciencies is wasted in perform my experiment, I was at least partly vindicated. It seems the marketplace. Finance folk think that no marketing is needed that trumpeting a discount is bizarrely eective, even if there is no because low prices speak for themselves. Nothing could be further discount to be had. from the truth. Now, heres the thing, if you believe conventional economic As Black Friday shows, the way to get people to buy things is to theory where people are trading o price and utility you make them excited by a low price, not just to oer low prices. As I wouldnt expect to see such a market eect, because every time put it recently, to economists, price is a number; to consumers, someone buys something, supposedly theyre comparing the price price is a feeling. they pay with the utility they gain. What this informal and 7 Impact ISSUE 44 2023_pp6-7_Rory.indd 7 05/12/2023 14:32