💎 On the importance of providing a backstory to price cuts (plausibility of the deal)

But when Meghan Busse, Duncan Simester and Florian Zettelmayer, academics from MIT and the Kellogg School of Management, investigated they discovered a curious anomaly. In the previous weeks the car companies had been cutting prices so much that the employee discount was generally no better and occasionally more expensive, than existing deals.

The academics hypothesised that it was the price cue, not the price, which mattered. Consumers reacted to the plausibility of the deal rather than the actual discount. When consumers don’t trust brands they treat deals sceptically, but when they’re accompanied by a back story they have more heft.

When you are contemplating promotions don’t rely on an eye-watering discount. Numbers leave customers cold. We’re not natural statisticians – stories move us to action far better.

Excerpt from: The Choice Factory: 25 behavioural biases that influence what we buy by Richard Shotton

💎 On consumers become less price sensitive when spending with credit card (we treat physical and digital differently)

Want proof? Consider an experiment conducted several years ago by Drazen Prelec and Duncan Simester, marketing professors at the Massachusetts Institute of Technology in Cambridge, Massachusetts. The pair organized a real-life, sealed-bid auction for tickets to a Boston Celtics game (this was during the Larry Bird, Kevin McHale, Robert Parish era, so the tickets were especially valuable). Half the participants in the auction were informed that whoever won the bidding would have to pay for the tickets in cash (although they had a day to come up with the funds). The other half were told that the winning bidder would have to pay by credit card. Prelec and Simester then averaged the bids of those who thought they would have to pay in cash and those who thought they could pay with a credit card. Incredibly, the average credit card bid was roughly twice as large as the average cash bid.

Excerpt from: Why Smart People Make Big Money Mistakes and How to Correct Them: Lessons from the New Science of Behavioural Economics by Gary Belsky and Thomas Gilovich