Persuasive Advertising - J. Scott Armstrong [38]
Three lab experiments showed that people are happier to pay upfront for hedonic products such as a vacation than for utilitarian products such as a washer/dryer (Patrick and Park 2006).
An analysis of data on Internet services concluded that customers typically pay much more for flat-fee service contracts than they would have paid on a per-use basis. This, plus findings from related areas, led to a paper with the clever title, “Paying too much and being happy about it” (Lambrecht and Skiera 2006).
Suppose you receive two ads for identical-looking, attractive shirts made from the same material. One states that it took 8.5 hours to make the shirt by hand. The second says, “thanks to modern technology, this shirt was made in 37 minutes.” Assuming the same price, which shirt would you purchase?
1.4.9. Use high costs to justify high prices
The value of a commodity is the amount of labor it has within it.
Karl Marx
From Hathaway’s founding in 1837, its shirts were known for quality and style. Prior to 1951, Hathaway did little advertising. In September 1951, Ogilvy ran an advertisement in the New Yorker magazine in which Baron George Wrangell, wearing an eye patch, appeared handsomely dressed in a Hathaway shirt. To justify the high price of the shirts, the ad claimed that the shirts were made by “dedicated craftsmen, who have been at it man and boy for one hundred and fifteen years.” Sales soared. The Hathaway man lived for 40 years.
Customers are concerned with fairness in pricing. This often leads them to think that prices should be based on production costs. This is an old idea. In the 13th century, Thomas Aquinas said, “he who in trading sells a thing for more than he paid for it must have paid less than it was worth or be selling it for more. Therefore, this cannot be done without sin.” Thus, when advertising high prices, consider explaining that costs are high, if this is indeed the case.
The tag line for Waitrose supermarkets in the United Kingdom provides an excellent application of this principle in their slogan, “Quality goods, honestly priced.” The ads explain the high costs of getting the best ingredients.
The strength of this effect is substantial. So, this might be a good time to remind you that the book you are reading took over 16 years to complete and drew upon help from more than 80 people.
Evidence on the effects of using high costs to justify high prices
In four experiments, 366 subjects were given different information about the effort required to produce a product, and were asked to rate the product’s quality. In an experiment on shirts, the subjects gave much better ratings to the shirts that took longer to make—thus the Hathaway man. The same results were found in experiments on food quality, preparing lists for those seeking to purchase a house, or presenting a talk. Interestingly, the findings were the same whether the subjects received information about effort and time before or after they experienced the product. The findings were also similar for those who had claimed that the time spent to produce the product did not matter (Chinander and Schweitzer 2003).
Unsurprisingly, a review of seven empirical studies showed that buyers think that cost-based pricing is fairer than market-based pricing (Xia, Monroe, and Cox 2004).
In three lab experiments, subjects gave better ratings to a real estate agent who spent nine hours preparing a list of ten apartments than to an agent who used a computer to generate the same list in an hour (Morales 2005). In addition, experiments using poetry, paintings, and suits of armor found that people judged the objects as more valuable if they had taken longer to produce (Kruger et al. 2004).
1.4.10. When quality is high, do not emphasize