The Situationist

Tamara Piety on Market Manipulation

Posted by The Situationist Staff on September 18, 2010

In response to Adam Beneforado’s terrific post this week, “Breaking Up Is Easy to Do: When Corporations Dump Consumers,” Situationist friend Tamara Piety wrote another excellent comment, a portion of which we’ve posted below.

* * *

To me, one of most offensive examples of this type of channeling is the price discrimination practice involved in rebate/coupon schemes. Rebates and coupons are used as a way to expand the customer base by attracting a few more customers by virtue of the illusion (for most) of a lower price point. We see it in electronics all the time – “Laptop $999 [with $250 rebate]” There are several things at work here at once. One is that the seller ( or whoever actually pays the rebate) has your money for some period of time ranging from 30 days to 6 months as an interest free loan. Second is the anchoring effect that makes $999 seem some how much less than $1,000. But the principle objection for me is that they are actually creating a staggered pricing program. Again, this might not be a problem if it simply involved selling to as many customers as possible on the basis of the price that they will want to buy. The problem is that in order to do this companies make the process of obtaining the lower price (i.e. the with the rebate price), much more onerous than it appears to be through a variety of devices that are intended to take advantage of the psychological effect of the lower price and then relying on consumer inertia, lack of attention, recalculation of the efforts and so forth to avoid actually making good on that promise. Getting the rebate usually involves fair amount of time and effort (filling out the rebate form, mailing it back, waiting for the check, etc.) and uncertainty (if you fail to observe deadline, miss a requirement in the fine print, fail to send in the original, etc.) you lose. None of these difficulties are simply bureaucratic obstacles which have the ancillary effect of depressing the number of rebates redeemed. They are intended to have this effect. And sometimes the rebate is “paid” in the form of a “gift card” rather than in a cash or check which further draws out the redemption process by providing an expiration date for the card, limitations on where it can be used, or even a restriction limiting its use to other products from the same seller.

Every single step in this process is calculated to generate some failures to complete the redemption process so that the customer doesn’t actually receive the advertised price. And this is seen as a perfectly legitimate set of strategies to maximize the sales of the same good across a range of consumers – from those who don’t care about the rebate, to those who do and intend to redeem and then fail to do so, to those who intend to try redeem and try to do so but fail to successfully jump through all of the hoops of the conditions imposed, to those, finally, who intend to redeem and successfully do so. Some percentage of the last three groups are consumers who presumably wouldn’t have brought the product but for the promised (but in at least two instances) undelivered rebate. And the difference between groups 2 and 3 and group 4 are explained by the seller as being entirely attributable to some character “flaw” (lack of attention, lack of diligence, etc.) or a “choice” not to redeem when that “choice” has been structured to take advantage of consumers’ psychological vulnerabilities (or their dawning realization that the time and effort required to pursue the rebate is not really “free” and thus it might be more rational to abandon the effort.) It is disingenuous and unfair to describe these consumer “choices” as unmediated.

* * *
Bottom line all these tropes – “control,” “choice,” “information,” as they are currently used and understood by many, operate to absolve the seller of any responsibility for their role in driving these choices even as several full-blown, mature industries’ very existence (advertising, marketing, PR) is predicated on the proposition that it is possible to manipulate and channel consumer choices. It is a feat of sleight-of-hand to argue (in essence) that entire industries’ efforts are of no consequence whatsoever even as billions of dollars are spent in plain sight on those efforts.

* * *

To read Piety’s entire comment, click here. Her focus is particularly timely in light of the fact that another Situationist friend, Elizabeth Warren, accepted President Obama’s invitation this week to set up a a consumer financial watchdog and warned yesterday that the time for financial “tricks and traps” was over.

The themes of market manipulation and the “choice myth” are common on the Situationist.  In addition to the sample of related posts linked at the bottom of Adam’s post,  here are few more:  Taking Behavioralism Seriously (Part I) – Abstract and Top Ten List; Promoting Smoking through SituationThe Big Game: What Corporations Are Learning About the Human Brain,” “Warren on the Situation of Credit,” “The Financial Squeeze: Bad Choices or Bad Situations?,” “No Contract for Old Men,” The Situation of Subprime Mortgage Contracts – Abstract.”

The first scholarly article (part of  a trilogy) devoted to these issues is Taking Behavioralism Seriously: The Problem of Market Manipulation (74 N.Y.U.L. Rev. 363 (1999)) available for free download on SSRN.

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One Response to “Tamara Piety on Market Manipulation”

  1. [...] Tamara Piety on Market Manipulation (Behavioral Economics & Persuasion Galore!) – via Situationist – To me, one of most offensive examples of this type of channeling is the price discrimination practice involved in rebate/coupon schemes. Rebates and coupons are used as a way to expand the customer base by attracting a few more customers by virtue of the illusion (for most) of a lower price point. We see it in electronics all the time – “Laptop $999 [with $250 rebate]” There are several things at work here at once. One is that the seller ( or whoever actually pays the rebate) has your money for some period of time ranging from 30 days to 6 months as an interest free loan. Second is the anchoring effect that makes $999 seem some how much less than $1,000. But the principle objection for me is that they are actually creating a staggered pricing program. Again, this might not be a problem if it simply involved selling to as many customers as possible on the basis of the price that they will want to buy. The problem is that in order to do this companies make the process of obtaining the lower price (i.e. the with the rebate price), much more onerous than it appears to be through a variety of devices that are intended to take advantage of the psychological effect of the lower price and then relying on consumer inertia, lack of attention, recalculation of the efforts and so forth to avoid actually making good on that promise. Getting the rebate usually involves fair amount of time and effort (filling out the rebate form, mailing it back, waiting for the check, etc.) and uncertainty (if you fail to observe deadline, miss a requirement in the fine print, fail to send in the original, etc.) you lose. None of these difficulties are simply bureaucratic obstacles which have the ancillary effect of depressing the number of rebates redeemed. They are intended to have this effect. And sometimes the rebate is “paid” in the form of a “gift card” rather than in a cash or check which further draws out the redemption process by providing an expiration date for the card, limitations on where it can be used, or even a restriction limiting its use to other products from the same seller. [...]

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