Introduction
Welcome to the blog! I’m extremely excited to be a part of MIT Sloan’s “A Tale of Two Countries: Applying Behavioral Science to Emerging Economics (Cuba and Trinidad & Tobago).” Beyond the obvious allure of being able to visit both Caribbean countries, I’m glad for the opportunity to dive deeper into behavioral science.
One particular aspect of behavioral science that intrigues me most is the subconscious effects that pricing has on consumers. In class, we discussed how price anchoring relates to shopping patterns. Anchoring bias can have significant effects on how a consumer perceives pricing, since it establishes the terms on which a decision will be made. A savvy salesperson can introduce a high price for a used car, for example, only to lower it subsequently to make the buyer feel as though he is getting a good deal that is far below the initial asking price. Perhaps more subtly, combing anchoring bias with choice sets can have powerful results. Professor Gosline explained how given a choice of three glasses of wine - $9, $11, and $15 - those who knew little about wine would avoid the $9 and gravitate toward the $11. Consumers fear picking an inferior product and rely on signals (in this case, price) that may indicate quality. While I’d like to consider myself enough of a oenophile to know that price does not necessarily indicate quality in wine, I certainly can relate to this bias when shopping for products like light bulbs and batteries: I avoid the inexpensive store-brand one and typically pick something in the mid-price range.
In my career, I am interested in seeing whether effective behavioral science can help shift consumer mindsets in the retail industry. Retail has been in a cycle of escalating markups coupled with perpetual “sales.” Because consumers are so used to getting a deal and buying things on discount, retailers have responded by increasing markups so that they can turn right back around and have a markdown. According to the WSJ, “the number of deals offered by 31 major department store and apparel retailers increased 63% between 2009 to 2012″ and big box retailers like JC Penny who tried to buck this trend failed miserably. Yet increasingly, new players in the e-commerce space are trying this no-sale approach and hoping to educate consumers along the way. Many of these companies (e.g. Warby Parker, Everlane, DSTLD, Casper) eliminate the “middlemen” (i.e., retail) and go direct-to-consumer, with the value proposition that consumers won’t have to play the retail markup game and instead get an everyday value for high-quality items that typically are marked up 7-8 times through retail channels. Will the rise of these companies be enough to challenge the behaviors of consumers, who are so accustomed to sales? How can retailers convince their customers that they are receiving a good value without anchoring at a high price point? I’m fascinated to explore this issue further throughout the course and apply learnings to address relevant issues facing Cuba and Trinidad and Tobago.
- AMK