Cheap (15 page)

After recording her subjects’ responses, Burman sorted them into two groups based on what she determined to be their “need for cognition,” the personality variable that reflects the extent to which people engage in and enjoy thinking. People with a high need for cognition (HNFC) are more likely to form opinions and make decisions by paying close attention to evidence and relevant arguments, while people with low need for cognition (LNFC) are more likely to form opinions built on peripheral cues, such as how attractive or credible they find the salesperson. After sorting them into these categories, Burman informed the members of each group that their camera’s actual retail price was only $249, precisely what they had paid for it. Given that few of us like to be fooled, it was no surprise that members of all groups were disappointed that their $249 “bargain price” was actually full retail. But HNFC subjects experienced much higher levels of disappointment than did the LNFC subjects. HNFC types regretted not only “buying” a camera that was less valuable than they were led to believe but also regretted making the decision that led to that outcome. The higher the bogus “reference price,” the worse HNFC subjects felt about their decision and the greater their regret. The HNFC subjects told that the camera was worth $799 felt downright miserable. They deeply regretted their decision despite the fact that making it had actually cost them nothing.

Discount retailers rely heavily on psychological manipulation to set customers up for the buy, but as Burman demonstrated, this tactic can backfire if customers get wise to it. “High-cognition customers will feel cheated, and this negative feeling will be transferred onto the product,” she said. “The value perception of the product itself may be reduced.”

Again, most of us are highly sensitive to what we perceive as the fairness of transactions. Daniel Kahneman once surveyed randomly selected adults, asking them whether they thought it was okay for a hardware store to raise the price of snow shovels during a snowstorm, and the response was a resounding no. Years later another team of social scientists asked the same question of a large group of executives and got pretty much the same response. Yet whether it is truly unfair to raise the price of a snow shovel during a storm is debatable. After all, this system might serve to discourage customers from buying multiple shovels, thereby diminishing the available supply. No matter, Americans abhor price “rationing” and are highly resistant to it. Such “dynamic” pricing, in which some customers pay more than others do for the same thing, is considered by most people to be patently unfair. When a customer discovered that Amazon was charging new customers less for books than old customers, he broadcast it over the Internet to universal outrage. Such pricing is not illegal, but it is dangerous. If customers discover it, they rebel. As one industry insider told the
Wall Street Journal,
“
Amazon.com
’s biggest mistake was getting caught.” The same was true for Apple when it sharply reduced the price of its iPhone just a couple of months after putting it on the market. Customers complained that this was simply not fair and that it made them lose faith in the company.

A close cousin to price rationing is the equally familiar “yield management,” whereby airlines and hotels moderate prices depending on demand. This practice is widespread and largely (if grumpily) tolerated. We have come to accept the idea that the guy sitting next to us in the back of the plane might have paid far less than we did for the seat. “Price discrimination is considered fair if it takes place for a socially acceptable reason,” Sarah Maxwell told me. Of course, “socially acceptable” is determined by context. If we all agree that airlines have a right to charge someone double for a ticket because he or she happens to purchase it outside a certain time frame, so be it.

Ultimately, most of us consider “fair” almost any price that benefits ourselves. On its face this seems a self-serving assessment, and it is: In most transactions our focus is not on the general public but on ourselves. Imagine this: What if, rather than offering a discount, retailers offered you the opportunity to pay a bit more so that others could pay a bit less? Would you take this offer or assume it was wacky and demand the lower price? Given that you have little or no control over what happens to the next customer—who, after all might be far richer than you—you are likely to fight for the best possible deal for yourself, hoping that whatever bargain you make does not adversely affect the next guy.

Humans are adept at rationalizing whatever conditions benefit them directly, and that includes discounts. As I’ve said, early adapters of the iPhone were furious when the price dropped by 40 percent sixty-six days after the rollout. But less impulsive customers who bought the iPhone after the price drop reasoned that the early birds
deserved
to pay more. Among the rationales stated for this gloating behavior was that early buyers should be punished for trying to be “too cool.” Such reasoning constitutes not a reasonable explanation but a sort of post hoc “Just-So Story” that justifies the good luck of the slow adapter.

When you think about it, any true discount by definition means that some people will pay a higher price for an item than others will. All of us like discounts and consider them fair, but most of us want to be on the winning end of the deal. That sets us up for promotional tricks that lure us into buying more and spending more for the pure satisfaction of scoring a “bargain” which—it is implied—is not available to just anybody.

“Price promotions are designed around the psychology of game playing,” Robert Schindler told me as he packed up to leave the Fordham meeting. “The key elements of a game are action with some intrinsic appeal, a goal that is attainable, and clear feedback on how you’re doing. Discounts have all of these. Some people play the waiting game, waiting for the price of something to drop. Some people play the radar game, in which they scope out bargains throughout a store, often following the same path every time. Some people play the “guess what I paid for it” game, when they buy something just to brag about how little they paid for it. And some people play the Santa Claus game in which they stock up on cheap stuff just to give it away. All these games are terrific at recruiting mental energy. All are great at inducing people to buy. These games, like all games, are about winning. And with discounts everyone feels like a winner no matter how much they lose.”

HOMER: Look at these low, low prices on famous brand name electronics!
BART: Don’t be a sap, Dad. These are just crappy knockoffs.
HOMER: Pfft. I know a genuine Panaphonics when I see it.
And look, there’s a Magnetbox and Sorny.
SALESMAN: Listen, I’m not going to lie to you. Those are all
superior machines. But if you like to watch TV, and I
mean
really
watch it, you want the Carnivale. It features a
two-pronged wall plug, a pre-molded hand grip well,
durable outer casing to prevent fallapart . . .
HOMER: Sold. You wrap it up, I’ll start bringing in the
pennies.

| THE SIMPSONS,
“SCENES FROM A CLASS STRUGGLE IN SPRINGFIELD,” FIRST AIRED FEBRUARY 4, 1996

 

 

 

 

 

 

The “deluxe” room at the Excalibur was a bargain. There were even cheaper options available in Las Vegas that week, but not with Exacali bur’s Knights of the Round Table meets Six Flags décor and its prime location just steps from the Strip. For $69 plus tax I got the full-throttle Sin City experience: a lobby thick with slot jockeys in track suits and sneakers plugging their Social Security checks quarter by quarter into electronic slot machines; billboards flashing round-the-clock neon teasers for bare-breasted “exotic” entertainment; and round tables of low rollers drinking scotch at 9 a.m., hope draining from their faces like transfusing blood. The baby stroller cavalry and the cavalcade of wheelchairs surprised me: “What happens in Vegas stays in Vegas” for sure, but it never occurred to me that it was happening to infants and their barely ambulatory great-grandparents.

To be fair, not much about Vegas had occurred to me. I was a naïf—not quite a Vegas virgin but close enough to be confused by a place where scoring a fair price on a decent cup of coffee was as unlikely as rolling a string of sevens at the craps table. Vegas is disorienting, but you have to squint hard to notice. The casinos are dimly lit and famously devoid of clocks, so night and day bleed together in a blur. Dropping a fistful of coins down the rabbit hole of a slot machine, I felt like every other sitting duck, but so what? Primary process appears to be the only brain function on call here, with heroic attempts at self-control and resolve utterly beside the point.

I was in Vegas to gamble, though in truth the casino was only a detour. My mission was to check out the retail gambit, which in Vegas seemed just as dicey as the slots. Scores of stores circle the hotel lobbies, and hundreds more line the Strip, hawking everything from tattoos (“Fresh needles for every new customer!”) to Corum Golden Bridge or Chopard Haute Joaillerie watches with an optional diamond wrist strap. It is terra incognita for a bargain hunter, but fortunately I had a guide: Gillian Naylor, a professor of marketing at the University of Nevada, Las Vegas.

Naylor’s paper, “Price and Brand Name as Indicators of Quality Dimensions for Consumer Durables,” in the
Journal of the Academy of Marketing Science,
had alerted me to her expertise in connecting the dots of brand name, price, and consumer perception. Her standards were high, and when I shuffled into her modest office, her appraisal of my stated mission was, to put it kindly, dubious. “The mall you’ve picked,” she said evenly, “is pretty bad. They have Catherine Plus Sizes and Dress Barn Woman.” Naylor is tall and elegant and no plus size. I felt a little foolish to have come all this way with no fashion sense. Sensing my discomfort (and panic), Naylor gently suggested that we aim a tad higher. She named a glamorous-sounding venue featuring discount versions of Coach, Dolce & Gabbana, A/X Armani Exchange, and 120 other stores. Ashamed to admit that my budget was more Dress Barn than Gabbana, I agreed, and minutes later we were off in her Acura TL, windows up, air-conditioning steady, destination Las Vegas Premium Fashion Outlets.

Outlet malls are big in Europe, Japan, and Hong Kong. They exist in Turkey, Dubai, and South Africa. If there is one deep in the Amazon rain forest, and another just south of the North Pole, it would not surprise me. But no matter where you find them, outlet malls are a deeply American institution. Like cowboys and football, no one builds them or loves them quite like we do.

The
New York Times
once reported that outlet malls were not only the fastest growing segment of the retail industry but one of the fastest growing segments of the
travel
industry. Franklin Mills Outlets in northeast Philadelphia rings in four times the visitors of the Liberty Bell. A pair of outlet malls near San Marcos, Texas, outdraw the Alamo. Colonial Williamsburg can’t hold a candle to mega-outlet mall Potomac Mills. This is not to suggest that Americans don’t take pride in our national heritage; we surely do. We revere the Liberty Bell and Colonial Williamsburg. We salute the Alamo. It’s just that most of us prefer to spend our time where we believe our dollar will go further.

About 55 million Americans shop in at least one of the nation’s roughly three hundred outlet centers every year. Stretched over five years, that number adds up to nearly every man, woman, and child in the country. Even more astonishing is the number of miles chalked up in this annual pilgrimage. The total distance that Americans travel to outlet malls each year equals 440,000 circumnavigations of the globe. If that number seems a little abstract, consider this: The distance to the moon is roughly equal to 10 trips around the globe. That is, we make 44,000 moon launches’ worth of outlet visits each year.

People travel celestial distances to outlet malls because until recently outlet malls were located celestial distances from people. On the surface this makes no sense; full-price “regional” malls are always situated with regard to demographics gauging the buying power and density of surrounding communities. And as a rule investors won’t put money into malls without the requisite “threshold population densities” that all but ensure sales. Nor will builders build them. But outlet malls are different. Resolute in their remoteness, they stand secure that, like Mu hammad and the mountain, the customers will come to them. Freed from the need to offer convenience, outlet malls are plopped down with what appears to be wild abandon. Of course that is an illusion: They are almost always located off a busy byway and, whenever possible, between two or more population centers. Generally this is a long drive from any particular population center—25 to 100 miles outside the metropolitan shadows, where real estate is cheap and the tax incentives sweet. In fact, until recently manufacturers preferred and sometimes even required outlet malls to locate far enough away from their department store rivals to avoid angering full-price retailers. But the remote location of outlets is not merely a defensive, cost-saving maneuver. It is also a deliberate
strategy
. In the public mind, convenience is a trade-off for price, and price is traded off for convenience. Inconvenience connotes cheap, while convenience connotes pricy. This is why restaurant valets can get away with charging $20 to park your Honda on the street and why “convenience” stores can charge $3 for a can of condensed chicken noodle soup. In a very real sense, outlets are the anticonve nience store. Visiting the outlets demands an investment in time, deliberation, and energy beyond what we invest in most other leisure activities. And because the effort required to reach and shop at them is substantial, even extraordinary, the experience of going to the outlet is elevated in our minds to “special occasion” status. A trip to the outlet mall is not passive, not simply a matter of popping in to pick up a few things. We have to work to get there, piling up hefty “sunk costs.” All that time! All that gas! “I gave up my entire Sunday afternoon and even missed the game to come here!” Psychologically speaking, all this and more must be repaid in the form of purchases made. In making that long trip we are actually engaged in a transfer of power away from ourselves to the outlet itself. The mall has extracted a price, and in demanding repayment, we are in fact taxing ourselves. Our expectations are raised at the same time that our guard is lowered, and in making this bargain we are willing to forgo many things that we once demanded from a satisfying shopping experience: variety, serendipity, aspiration—and fun.