What is the name (I assume there is one) for the following pricing/marketing strategy?
A theater sells buckets of popcorn in three sizes for the following prices:
Small - $4
Medium - $7.25
Large - $8.00
The theater doesn’t really plan to sell many medium buckets as customers look at the prices and anyone wanting to order more than a small quantity is pushed to buy the large. They see the big $3.35 price jump from small to medium but note that if they order a large there is only a modest 75 cent increase. The customer walks away thinking they got a better value but in actuality the theater just increased their profit, as they really want people to buy the large not the mediums.
The more general term (although not specific to this example) is anchoring. It’s very common for one price to “anchor” all the others in a range or selection, and many, many studies have been done showing that shifting the anchor price can completely change consumer response.
See: Priceless, by William Poundstone. Hugely insightful book on the ideas of pricing, cost and relative value and as readable as his Big Secrets series.
Anchoring is used in restaurant wine pricing. They usually put the highest margin on the second cheapest wine. People don’t like to appear cheap, so they’ll avoid the cheapest selection.
Isn’t anchoring something different: the tendency of an earlier suggestion to influence subsequent ones?
For example, “This trinket is worth between $60 and $40. What do you think is a fair price for it?” would net a higher response than the exact same numbers flipped backwards – “It’s worth $40 to $60, what do you think?”
Anchoring seems to have to do with the ordering of options.
The decoy effect / asymmetric dominance effect is something different, not about the order the popcorns are presented in (S, M, L vs L, M, S) but that between the two extremes (small and large), medium is much much closer to large and that makes the upgrade to large seem like a very small jump. The asymmetry, not the order of presentation, is what makes this effect work.
And Wikipedia doesn’t really talk about whether this happens just because the L popcorn is the best value / dollar. What would happen if there were an XL size too, priced the same interval as between M and L?
It depends on how specific you want to be. Anchoring is only a loose description of what’s going on with the popcorn, but it addresses the overall price spread.
The eccentric gaps in pricing are something else, but still depend on a variation of anchoring. I’m sure some marketing dissertation somewhere invented a cooler phrase.
The real issue here is theater economics, which approach the absurdity event horizon.
I haven’t seen that crafty psychological pricing strategy is always involved. I’ve seen many times where what happened was much more mindless. or at least, not a result of what you first think.
Sometimes the CONTAINER pricing, which is set by someone else, is what leads to the weird results. The cost of making a twenty ounce container is almost as much as making a thirty ounce one, and hte difference in the cost of the stuff IN the container is negligible.
The cost differential between the smallest and largest of most grocery store products is negligible - the overhead cost of putting ANY size on the shelf often dwarfs the relative cost of 6 ounces vs 24 ounces of stuff.
(That’s “most” and “often” - there are certainly products that have relatively high per-ounce costs as well.)
I’ve noticed most gas stations have really weird pricing schemes. AMPM and 7-11 do a weird thing where the smallest cup of soda (16 or 20 ounce depending on franchise) is 99 cents. The “medium” (usually 32 ounce) is either the same price or actually cheaper (89 cents) than the small. Then you hit a steep uptick in price for large (40 ounce for $1.39), extra large (50 ounces for $1.59) and trucker sized (64 ounces for $1.99)
Anyone know why they seem to promote the medium over anything else?
I had a sorta relevant popcorn experience just yesterday. Went to a Marlins baseball game. (They lost, but you already knew that).
Popcorn came in two sizes: a pretty large bag for $8.50 and a truly huge tub for $11. (Yes, MLB ballpark food is a rip-off. Rant in your own thread.)
The come-on was that the tub came with unlimited free refills. I knew a bag was as much as wife & I would eat and about 50% more than we *should *eat. So I bought a bag. And finished it. Of course. Yes, kayaker, it was as tasty with evil palm kernel oil, fake butter flavor, and insane amounts of salt as you think it was.
But I wondered how many tubs they sold on the promise of “unlimited *free *popcorn” that don’t get refilled at all? The incremental cost of the container is a penny or three and of the popcorn another penny. The incremental $2.50 in revenue is at 60:1 margin. Ka-ching!
So what’s the name for a marketing [del]scam[/del] technique that appears to offer an irresistibly better price per unit on large volumes, but only on implausibly large volumes?
