πŸ’Ž On reframing price comparisons (Starbucks Short, Tall, Grande, and Venti)

When Howard Shultz created Starbucks, he was as intuitiveΒ  businessman as Salvador Assael. He worked diligently to separate Starbucks from other coffee shops, not through price but through ambiance. Accordingly, he designed Starbucks from the very beginning to feel like a continental coffeehouse.

The early shops were fragrant with the small of roasted beans (and better-quality roasted beans than those at Dunkin’ Donuts). They sold fancy French coffee presses. The showcases presented alluring snacks — almond croissants, biscotti, raspberry custard pastries, and others. Whereas Dunkin’ Donuts had small, medium, and large coffees. Starbucks offered Short, Tall, Grande, and Venti, as well as drinks with high-pedigree names like Caffe Americano, Caffe Misto, Macchiato, and Frappuccino. Starbucks did everything in its power, in other words, to make the experience feel different — so different that we would not use the prices at Dunkin’ Donuts as an anchor, but instead would be open to the new anchor that Starbucks was preparing for us. And that, to a great extent, is how Starbucks succeeded.

Excerpt from: Predictably Irrational: The Hidden Forces That Shape Our Decisions by Dan Ariely

πŸ’Ž On how much we value a product partly depending on what we compare it to (choose your comparisons carefully)

Christopher Hsee, George Loewenstein, Sally Blount and Max H. Bazerman once ran an experiment in which they asked people browsing used textbooks how much they would pay for a music dictionary that had 10,000 words and was in perfect condition. Another group was asked how much they would pay for a music dictionary with 20,000 words but a torn front cover. Neither group knew about the other dictionary. On average, the students were willing to pay $24 for the 10,000-word dictionary and $20 for the cover-torn 20,000-word one. The cover – irrelevant to looking up words – made a big difference.

The researchers then cornered another group and presented them with both options simultaneously. Now the students could compare the two options side by side. That changed their perception of the products. In this easy-to-compare group, the students said they would pay $19 for the 10,000-word dictionary and $27 for the 20,000-word one with the torn cover. Suddenly, with the introduction of a more clearly comparable aspect – number of words – the larger dictionary became more valuable, despite the torn cover.

Excerpt from: Small Change: Money Mishaps and How to Avoid Them by Dan Ariely and Jeff Kreisler