Book Review - Priceless

I have a huge amount of affection for Priceless by William Poundstone because it was the book that first introduced me to behavioural economics. It prompted me to study all things behavioural at university, and I haven't looked back. For this reason I may be a little biased in favour of Priceless but the bias is, at root, caused by the book being brilliant.

William Poundstone expertly explores how shops constantly use behavioural economics to encourage you to buy their goods, while simultaneously telling the story of how behavioural economics came to be. It is an utterly gripping read, written by an accomplished journalist who knows how to keep you hooked. It will have you doing little experiments on your friends all the time (as my housemates at the time can testify).

Priceless lifts the lid on the art of pricing, advertising and marketing. You will finish it a wiser consumer, potentially less like a hapless wave; driven and tossed by the winds of capitalism.

My favourite example that he uses is of the free 72 ounce steak. Some American burger joints are famous for offering 72 ounce  steaks for $72 unless you can finish it in one sitting, in which case there is no charge. People travel miles to take the challenge, and when they do they are placed on a high table, with all their friends looking on from the rest of the restaurant. Poundstone reveals that the way these burger joints make their money is not from people failing the challenge (which is most of the time), but from their friends paying over the odds for a normal steak. Their friends' perception of value is anchored on the $72 steak, and so the $19.99 steak seems cheap, even though it might only be $9.99 elsewhere. The moral of the story is don't buy a normal steak at one of these places!

My one gripe with Priceless is that it focuses on the psychologists at the cost of behavioural economists. The two groups do not always agree and in some cases the story is rather one-sided. This, however, is a minor complaint; Priceless has so many outstanding features that make it just fantastic.

It is A Very Good Read. I can't remember what the price was, but I know how much it's worth; quite simply...

Priceless by William Poundstone
Genre: Psychology/Behavioural Economics
Accessibility: 10/10
Accuracy: 7/10
Readability: 10/10
Usefulness: 8/10
Verdict: A Very Good Read

Best Before End

Just a quick thought that occurred to me as I ate pudding earlier... Best Before End is brilliant wording.

It communicates the fact that the food in question will go mouldy and disgusting if left too long, but in a positive way. It will lose its taste. It will become horrible. It may go green. But what you're thinking about is that it will be Best, and for another 18 months at that. Will Go Mouldy After just doesn't quite have the same ring to it.

In conclusion, when it comes to packaging, a lot of thought has gone into even the smallest of details.

Blu-tack Signals

Picture the scene...

You are an inventor. You have just invented an amazing new type of blu-tack; twice as sticky as normal blu-tack. How do you communicate the awesome stickiness of this new blu-tack to consumers?

You could launch adverts with the slogan "twice as sticky". You could put "twice as sticky" on the packaging.

One of the most powerful ways to signal quality is price. If something is expensive it must be good. If it is cheap, well, you get what you pay for.

If I were the blu-tack inventor I would attempt to signal the greater stickiness by charging more.

This kind of thinking is contrary to the idea that lower prices increases demand. Why? Because consumers like you and me do not know the quality before purchase. We do not have perfect information. We respond to signals, even about blu-tack.

And the power of price doesn't end there. If we expect the blu-tack to be twice as good, we are more likely to think it is after using it, regardless of whether it actually is. Paradoxically, if we pay more for a product our enjoyment of said product may increase. Funny old world.

Beyond Own Brand

As we perused the soup section of my local Tesco recently, it was obvious to my friend and I that Tesco were pushing their own brand soup (Tesco Everyday Value). A lot of shelf space close to other cheap soups was dedicated to it. However, the vast majority of the soup category was taken up by Heinz - a brand known mainly for its quality rather than price. It would appear that Tesco was not directly competing with Heinz, especially as Tesco Everyday Value soup was not placed directly next to the Heinz soups.

We were wrong.

Upon closer inspection (and a little light research) we discovered that Crosse & Blackwell, a high end brand placed next to Heinz, is owned by Tesco.

So what?

Tesco is clearly wanting to gain market share in the world of quality soup (who wouldn't?). However, they've realised that consumers see Tesco Everyday Value as an inferior option to brands like Heinz. If you wanted a really nice soup, you would look at Heinz, Campells or Baxters. Not Tesco Everyday Value.

People are very good at creating rules of thumb; seeing Tesco on the packaging usually means low price, not high quality. Thus when we quickly (and we're always in a rush) scan shelf after shelf of similar looking soups, we narrow down the options using rules of thumb. (This isn't a criticism of consumer behaviour; rules of thumb are necessary to survive in this complicated world.) We quickly rule out Tesco own brand soup as inferior (correctly or not).

So what do Tesco do?

They create (or buy) a brand that consumers will not immediately write off as low quality. Crosse & Blackwell are the method Tesco are using to squeeze market share out of Heinz. Instead of fighting the rule of thumb and re-branding Tesco Everyday Value, they simply create a new brand. Simples.

Addictive Blogger Statistics

Despite being well-acquainted with behavioural economics I am not immune to being influenced by it. Google Blogger, through which GuruHogg exists, provides live updates on the number of people reading GuruHogg - it is addictive! I promise that if it weren't for the live statistics I wouldn't be too bothered how many people read GuruHogg, but with live stats it is a completely different matter...

12th September

You can see which are the most popular posts. You can even see which country readers are from:

This changed my behaviour. I quickly moved from being ambivalent about readership to being addicted to the stats. A simple 'nudge' made all the difference. By constantly giving me updates about how many people read GuruHogg I became interested in increasing that number. This is not necessarily a bad thing; I actually suspect that thinking about what people read the most may have improved the posts I put up here. But I am trying to be less interested by the stats because it is not a driving motivation behind GuruHogg.

Anyway, I ramble. In conclusion, no one is immune from being nudged into different behaviour. Not even GuruHogg!