Predictably Irrational: Perceived value with “bottomless” “unlimited” and “cheap”

Predictably Irrationa

I’m halfway through Predictably Irrational by Dan Ariely and I must say that this is my new marketing bible for observing the seemingly irrational behavior of consumers when certain buzz word concepts like “free,” “value added,” “extra” and “unlimited” are brought into the marketing copy. It’s a beautiful book — and if you’re the type who enjoyed other books like Freakonomics, The Long Tail and Tipping Point, this is another must have to your collection.

One of the chapters in Ariely’s book talks about a concept known as “anchoring.” The premise is that consumers never make choices based on a product’s price alone, but rather based on the relative price of something else. When you buy a mobile phone for instance, you always compare the affordability based on a previous phone you owned, or with the relative price of similar units. More importantly though, the book talks about how consumers’ anchor price can change. We used to pay P5.00 for a sachet of Blend 45. Now we pay P100.00 for a cup of Starbucks. Ariely explains how “perceived value” raises the anchoring price of things we buy. Starbucks’ ambiance makes you feel like you’re drinking quality coffee and marketing changed “small,” “medium,” and large to “tall,” “venti” and “grande.” It’s like stepping into a different country where the relative price of everything is different.

Sadly, anchoring of prices can work negatively as well for consumers when marketers weave in the concept of “free” “bottomless” or “unlimited” which is a very powerful word in this industry. When we see “bottomless iced tea” in the menu, we go for it, and restaurateurs know we will – that’s why they price it high even if we only finish two or three glasses – still way beyond break even price. The “Unlimited” calls and texts of SUN for instance charge P25.00 per day, which is P750.00 per month. The average prepaid usage for calls is 214 minutes per month based on consumer research and at a buck per minute for “unlimited rates,” that’s really P214.00 per month for calls. On a daily average, calls should cost P7.14 per day, not P25.00 (more less 350% higher?). There’s something that’s also not factored in – dropped call rate, which according to the NTC – SUN has the most alarming drop call rate at almost 20%.

There’s a third example – when you walk into a department store and see three LCD TV’s – a Samsung, SHARP, and a SONY in the showcase all at different prices, you tend to take a look at the weakest link (Samsung usually keeps the lowest priced ones) in comparison to the other two “higher end” and “higher priced” units. The fact is, the salesman built this arrangement on purpose so you can compare the cheaper unit side by side the other much higher priced units. Instinct tells you you’re getting a great deal on the most affordable unit, and so you buy it! The truth? That’s what the salesman wanted to push in the first place to meet his quota. He could have very well lined up the most expensive TV from the set (the SONY) alongside other cheaper or more expensive promos.

That’s why perceived value is always relative to something else. Comments?

4 Responses to “Predictably Irrational: Perceived value with “bottomless” “unlimited” and “cheap””

  1. Genski says:

    Hi Jayvee…just like to ask your opinion since you’re talking about value for money…well I got a friend of mine offering me to join a networking business. Wherein to start the business I will have to pay for a global package that is worth P7,980. In return I’ll get:

    (1) P6,750 worth of product (food supplement)
    (2) P200,000 personal accident insurance (MAFRE/Insular), wherein I may also claim P10,000 maximum medical reimbursement per accident not resulting to death.
    (3)50% discount certificate in Jansen Cosmetic Surgical Clinic
    (4)Free Medical Check up in MedCentral Dr. Nonoy Zuniga Clinic in Galleria
    (5)One scholarship certificate that is transferable, no qualifying exam and no maintaining grade that is good for the entire course in any of (AMA, Informatics, Datamex or Inteface)

    Do you think it’s okey to invest in this business?

  2. Thought provoking as always Jayvee. In an economy where how much you save is just as important as how much you make, it’s important to see marketing concepts applied in favor of the consumer. I had a Sun cell for a while, less than 3 months really. The “savings” just wasn’t worth the value I was getting, which in this case was close to nil. So I chucked it. I order the bottomless drinks sometimes though but that’s only because I can finish off 4 or 5 glasses and even then, I don’t order it all the time. People should really stop and take a good look at the actual value they’re getting and not be sidetracked by the supposed value the vendor is projecting.

    Oh and Genski, give this a read. It might save you a few bucks.

  3. Jayvee says:

    the sun cell i got a few weeks ago — its still there but i really don’t use it anymore because of lack of signal. didn’t bother loading as well. apparently there’s an expiry date to the “unlimited” promo so you’re really forced to consume the load.

  4. [...] Jayvee’s review of “Predictably Irrational”, the survey is not surprising: “When you buy a mobile phone for instance, you always compare [...]

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