I’m sure you’ve all seen commercials like this dozens of times:
A person is shown (usually in black-and-white) trying to use an ordinary consumer product, and failing miserably. Often their failure can only be attributed to the most abject incompetence, but the narrator will explain otherwise: “Old product is so hard to use. Who can handle [basic household activity] and [simple instructions]?”
“Struggle no more!” he says (it’s almost always a masculine narrator), and the video turns to full color as the same person is shown using the new consumer product effortlessly. “With innovative high-tech new product, you can do [basic household activity] with ease in no time!”
“Best of all, new product, a $400 value, can be yours for just five easy payments of $19.95. That’s five easy payments of $19.95!”
And then, here it comes: “But wait. There’s more! Order within the next 15 minutes and you will get two new products, for the same low price. That’s $800 in value for just five easy payments of $19.95! And best of all, your satisfaction is guaranteed! If you don’t like new product, return it within 30 days for your money back!” (A much quieter, faster voice says: “Just pay shipping and handling.”)
Call 555-1234. That’s 555-1234.
Did you ever stop and think about why so many commercials follow this same precise format?
In short, because it works. Indeed, it works a good deal better than simply presenting the product’s actual upsides and downsides and reporting a sensible market price—even if that sensible market price is lower than the “five easy payments of $19.95”.
We owe this style of marketing to one Ron Popeil; Ron Popeil was a prolific inventor, but none of his inventions have had so much impact as the market methods he used to sell them.
Let’s go through step by step. Why is the person using the old product so incompetent? Surely they could sell their product without implying that we don’t know how to do basic household activities like boiling pasta and cutting vegetables?
Well, first of all, many of these products do nothing but automate such simple household activities (like the famous Veg-O-Matic which cuts vegetables and “It slices! It dices!”), so if they couldn’t at least suggest that this is a lot of work they’re saving us, we’d have no reason to want their product.
But there’s another reason as well: Watching someone else fumble with basic household appliances is funny, as any fan of the 1950s classic I Love Lucy would attest (in fact, it may not be a coincidence that the one fumbling with the vegetables is often a woman who looks a lot like Lucy), and meta-analysis of humor in advertising has shown that it draws attention and triggers positive feelings.
Why use black-and-white for the first part? The switch to color enhances the feeling of contrast, and the color video is more appealing. You wouldn’t consciously say “Wow, that slicer changed the tomatoes from an ugly grey to a vibrant red!” but your subconscious mind is still registering that association.
Then they will hit you with appealing but meaningless buzzwords. For technology it will be things like “innovative”, “ground-breaking”, “high-tech” and “state-of-the-art”, while for foods and nutritional supplements it will be things like “all-natural”, “organic”, “no chemicals”, and “just like homemade”. It will generally be either so vague as to be unverifiable (what constitutes “innovative”?), utterly tautological (all carbon-based substances are “organic” and this term is not regulated), or transparently false but nonetheless not specific enough to get them in trouble (“just like homemade” literally can’t be true if you’re buying it from a TV ad). These give you positive associations without forcing the company to commit to making a claim they could actually be sued for breaking. It’s the same principle as the Applause Lights that politicians bring to every speech: “Three cheers for moms!” “A delicious slice of homemade apple pie!” “God Bless America!”
Occasionally you’ll also hear buzzwords that do have some meaning, but often not nearly as strong as people imagine: “Patent pending” means that they applied for the patent and it wasn’t summarily rejected—but not that they’ll end up getting it approved. “Certified organic” means that the USDA signed off on the farming standards, which is better than nothing but leaves a lot of wiggle room for animal abuse and irresponsible environmental practices.
And then we get to the price. They’ll quote some ludicrous figure for its “value”, which may be a price that no one has ever actually paid for a product of this kind, then draw a line through it and replace it with the actual price, which will be far lower.
Indeed, not just lower: The actual price is almost always $19.99 or $19.95. If the product is too expensive to make for them to sell it at $19.95, they will sell it at several payments of $19.95, and emphasize that these are “easy” payments, as though the difficulty of writing the check were a major factor in people’s purchasing decisions. (That actually is a legitimate concern for micropayments, but not for buying kitchen appliances!) They’ll repeat the price because repetition improves memory and also makes statements more persuasive.
This is what we call psychological pricing, and it’s one of those enormous market distortions that once you realize it’s there, you see it everywhere and start to wonder how our whole market system hasn’t collapsed on itself from the sheer weight of our overwhelming irrationality. The price of a product sold on TV will almost always be just slightly less than $20.
In general, most prices will take the form of $X.95 or $X.99; Costco even has a code system they use in the least significant digit. Continuous substances like gasoline can even be sold at fractional pennies, and so they’ll usually be at $X.X99, being not even one penny less. It really does seem to work; despite being an eminently trivial difference from the round number, and typically rounded up from what it actually should have been, it just feels like less to see $19.95 rather than $20.00.
Moreover, I have less data to support this particular hypothesis, but I think that $20 in particular is a very specific number, because $19.95 pops up so very, very often. I think most Americans have what we might call a “Jackson heuristic”, which is as follows: If something costs less than a Jackson (a $20 bill, though hopefully they’ll put Harriet Tubman on soon, so “Tubman heuristic”), you’re allowed to buy it on impulse without thinking too hard about whether it’s worth it. But if it costs more than a Jackson, you need to stop and think about it, weigh the alternatives before you come to a decision. Since these TV ads are almost always aiming for the thoughtless impulse buy, they try to scrape in just under the Jackson heuristic.
Of course, inflation will change the precise figure over time; in the 1980s it was probably a Hamilton heuristic, in the 1970s a Lincoln heuristic, in the 1940s a Washington heuristic. Soon enough it will be a Grant heuristic and then a Benjamin heuristic. In fact it’s probably something like “The closest commonly-used cash denomination to half a milliQALY”, but nobody does that calculation consciously; the estimate is made automatically without thinking. This in turn is probably figured because you could literally do that once a day every single day for only about 20% of your total income, and if you hold it to once a week you’re under 3% of your income. So if you follow the Jackson heuristic on impulse buys every week or so, your impulse spending is a “statistically insignificant” proportion of your income. (Why do we use that anyway? And suddenly we realize: The 95% confidence level is itself nothing more than a heuristic.)
Then they take advantage of our difficulty in discounting time rationally, by spreading it into payments; “five easy payments of $19.95” sounds a lot more affordable than “$100”, but they are in fact basically the same. (You save $0.25 by the payment plan, maybe as much as a few dollars if your cashflow is very bad and thus you have a high temporal discount rate.)
And then, finally, “But wait. There’s more!” They offer you another of the exact same product, knowing full well you’ll probably have no use for the second one. They’ll multiply their previous arbitrary “value” by 2 to get an even more ludicrous number. Now it sounds like they’re doing you a favor, so you’ll feel obliged to do one back by buying the product. Gifts often have this effect in experiments: People are significantly more motivated to answer a survey if you give them a small gift beforehand, even if they get to keep it without taking the survey.
They’ll tell you to call in the next 15 minutes so that you feel like part of an exclusive club (when in reality you could probably call at any time and get the same deal). This also ensures that you’re staying in impulse-buy mode, since if you wait longer to think, you’ll miss the window!
They will offer a “money-back guarantee” to give you a sense of trust in the product, and this would be a rational response, except for that little disclaimer: “Just pay shipping and handling.” For many products, especially nutritional supplements (which cost basically nothing to make), the “handling” fee is high enough that they don’t lose much money, if any, even if you immediately send it back for a refund. Besides, they know that hardly anyone actually bothers to return products. Retailers are currently in a panic about “skyrocketing” rates of product returns that are still under 10%.
Then, they’ll repeat their phone number, followed by a remarkably brazen direct command: “Call now!” Personally I tend to bristle at direct commands, even from legitimate authorities; but apparently I’m unusual in that respect, and most people will in fact obey direct commands from random strangers as long as they aren’t too demanding. A famous demonstration of this you could try yourself if you’re feeling like a prankster is to walk into a room, point at someone, and say “You! Stand up!” They probably will. There’s a whole literature in social psychology about what makes people comply with commands of this sort.
And all, to make you buy a useless gadget you’ll try to use once and then leave in a cupboard somewhere. What untold billions of dollars in wealth are wasted this way?