What’s the worst way to sell something?
Sushi pricing, where the customer pays a separate price for each bite, might well rank at the top.
According to Carnegie Mellon University economics and psychology professor George Loewenstein, selling products in a way that the consumer sees the price increase with every bit of consumption causes the most “pain.”
Consumers are not weighing the current gratification vs. future gratifications. They experience an immediate pang of pain [when they think of how much they have to pay for something]. That perspective has a lot of implications. For example, it helps to explain why credit cards encourage people to spend; they anesthetize the pain. Paying with a credit card makes you feel like you’re not really spending money when you buy something.
It also explains why AOL switched from pay-per-hour Internet service to pay-per-month. When they did that, they got a flood of subscribers. They were caught totally by surprise by the overwhelming consumer demand. Why do people love to prepay for things or pay a flat rate for things? Again, it mutes the pang of pain. The worst-case alternative is when you pay for sushi and you’re paying per piece. Or watching the taxi meter; you know how much every inch of the way is costing you. [From Professor: Pain, Not Logic, Dictates Spending – SmartMoney.com]
How to reduce this pain?
- All-inclusive prices
- Fixed monthly price (e.g., for streaming any number of songs or movies)
Or it could be a hybrid: pricing tiers. The more you use, the more you pay, but in a very predictable way, and in just a few distinct tiers. If you stay within your tier, you pay the same.
Subscription services that renew automatically each month further reduce the pain of paying by not forcing the consumer to make a deliberate purchase decision.
Interestingly, it’s possible that in many cases, the single price is actually higher than the amount the consumer would have spent on individual food items, movies, etc. Nevertheless, the all-inclusive number is likely to appeal to many consumers, particularly those that Lowenstein would identify as being most sensitive to the pain of paying.
The message is clear: try to avoid multiple individual “pain points” in the buying process whenever possible.
PS. I like sushi. If only they had the “all-inclusive” prices… I could put a restaurant or two out of business 😃🍣