Jeff Koeze's Blog Good Food, Good Business, and the Good Food Business

10Feb/090

Behavioral Economics to the Rescue

Several years ago I read about a study involving what people say they will pay for pens.  I haven't been able to find the reference, but the basic setup was that people were presented with a typical cheap pen and, say, a $50 pen.  They were asked which they would buy.  Almost nobody would pay $50.  But when presented with a cheap pen, a $50 pen, and a $100 pen, lots more people people picked the $50 pen.

I figured I'd test this out in my catalog, and asked my staff to create a $250 gift basket, which at the time was more than twice as expensive as any in our book.  This was immediately placed on the "Jeff's Idiotic Ideas" list by my employees.

I couldn't see any effect on the less expensive baskets, but it sold well.  So then I said, well, let's try a $500 basket.  Again, no obvious effect on lower-priced baskets, but it sold well too.

I've been told that there is no way we could pack and ship a $1000 basket.

So we haven't added to the growing store of knowledge about behavioral economics, but I have learned to test assumptions about price points and what the market will bear.

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