Tuesday, March 25, 2014

Euvoluntary Marketing Part 2 of 4: Price

Offer and acceptance is a bargain struck.

As a buyer, I've got a little secret. My secret is this: I know just how much I want what it is you're offering. I know what I'm willing to give up to get that thing.

Ah, but how do I know? How do I know that the proper exchange rate between that pair of loafers and some movie theater popcorn is actually 1:20? What if I estimate a fair price by comparison? What if the chief way I know a price is just is by comparing it to context hints, even if those hints are utterly irrelevant to the value I get from the thing once I take it home and start using it? Can't a canny marketing person take advantage of this?

Here's an extreme example I recall from when I lived in the Pacific Northwest. A mattress outlet got into a spot of trouble for advertising year-round that they had a special sale going on, where their mattresses were up to 75% off!!! Maybe it was only two exclamation points, I can't recall. Point is, if you're running a non-stop price promotion, doesn't that mean that the "sale" price is actually the ordinary price?

An economist will knit her brow and wonder what the problem is. Is there an offer? Is there acceptance? Yes? Then we have a bargain struck. The commercial kayfabe around the deal shouldn't be relevant. Value is generated for buyer and seller when a voluntary agreement is made.

But is it euvoluntary when sellers are using anchoring tricks? Oh, this? This usually sells for $450, but today I'll let you have it for 20 bucks and a smile. How about when bargain hunting becomes pathological? Hands up if you know someone who buys something just because it's on sale? Come on. Be honest.

But here's the thing. Is it analytically responsible to knock even that sort of behavior? Sure, you might never use that gutter polishing wand you picked up for 90% off, but is the pleasure the bargain hunter gets from finding a fantastic deal any less real, any less valid than the... (economics gods forgive me for typing this word) ...utility another consumer might get from using the gutter wand for its intended purpose?

And isn't it better that sluggish inventory ends up in someone's home with at least a small chance of eventually being used for its intended purpose than rotting in a landfill somewhere?

Prices are information. The important question for folks who worry that marketeers are using trickery to move merchandise is whether or not a third party could have access to better information than the people making the exchange. And once that question is answered, whether or not it's just for the state to forcibly intervene, forcing both parties to accept the non-exchange BATNA. Color me skeptical.

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Do you have suggestions on where we could find more examples of this phenomenon?