Q: An example?

A. When a friend went shopping for a condominium a couple of years ago, she was looking at one unit which was less useful to her. However, the seller offered a special deal on the lawn care and common area maintenance for five years. This appeared to be a substantial savings–enough to make her consider the disadvantages for her purposes. During the negotiation process she found out that another recent condo purchaser in the same development had gotten her unit for less–by nearly the same amount of the maintenance “savings.” In other words, had she gotten the no-maintenance deal, she would have paid the same amount and still be in a unit less useful for her purposes.

Q: How else do we behave contrary to our best interests?

A. By comparing prices on similar items.  You might say, “But I thought that was the smart thing to do?”  It is, but only if you compare everything with everything. If you merely compare items near one another, you leave yourself open to being influenced.

When you open the menu at a restaurant, you may not realize that the prices you see on that page affect what you’re willing to pay.

If the most expensive entrée on the menu is $45, you might decide $30 is an acceptable price. But if the restaurant were to add a $60 dish, you may be willing to pay $45. This process resets your “maximum expenditure threshold”–a subconscious process. The same issue arises when shopping for real estate. Letting a broker show you a house above your maximum expenditure threshold–the top of your range–can be very costly.

Another example of this is the sticker price on new automobiles.  Most consumers realize you rarely have to pay the sticker price for a new car.  The manufacturers know that a high price here will reset your maximum expenditure threshold.  Yes, you will likely pay less, but what you do pay will likely be more than you had planned to pay when you went into the dealer’s showroom.

Q: How do we overcome this irrational behavior?

A. There’s neither a single nor permanent cure-all. When we see the word “free,” we should ask ourselves, “What’s the seller trying to do here?” Also, it sounds strange, but we should try to avoid looking at price at the beginning. We should decide what we want and what we’re willing to pay without being influenced by outside factors.  After we have completed that thorough analysis, we can consider the pricing involved.

I know that sounds simplistic, but with practice, we can become very good analysts of the subconscious marketing messages.

There have been some criticisms of Ariely’s methods, but he has presented many interesting and thought provoking ideas.  With the insights of “Predictably Irrational: The Hidden Forces That Shape Our Decisions,” we consumers can be better armed in the critical thinking process of marketers’ messages.

I recommend you get a copy and study it.

To your business success!