Given this raw material there is something to be said here.  But I can’t quite pull it together.

Something about how coupons are are a way to overcome the buyer’s impulse control?

Something about how no market is immune to discriminatory pricing?

This may well be the most evil thing I’ve yet encountered in my hobby around pricing games and shaping consumer behavior.

… Valeant’s business model.

They bought an out-of-patent drug (Sodium Seconal) which is used in physician assisted suicide – and after the California government passed laws to make the above legal they jacked the price up to $3000. … consistent with Valeant’s business model there is a copay coupon so that you, dear patient, are not out of pocket, whilst your insurance provider takes the hit.

via Bronte Capital.

One of my favorite insights about pricing came from thinking about why bespoke tailors never discount.    The fun bit was the realization that sales (discounting, coupons, etc. etc.) are about impulse control.   Both players, Betty the buyer and Sam the seller, are tempted by discounting.

Sam discounts because it helps to close the deal, since it helps Betty to overcome her impulse control.  So Sam is very tempted; and that temptation means he’s got an impulse control problem too.  At it’s core the discounting acts to expedite the sale, it’s an accelerant.

But yeah, if Betty knows that Sam is given to discounting that knowledge dampens sales!  For example there is a men’s clothing store near my office, but I know that everything in can be had for 40-60% less than the usual asking price.  But only if I play the pricing games this vendor uses.  I “just” need to puzzle out what those are and then: wait for the sale, get the coupon, and buy the gift card in the secondary market, order online with delivery to store, and finally exchange what I bought for the item I really wanted in the store.

When the bespoke tailor clarifies that he never discounts he’s signalling that his goods are a luxury item with a lot of bundled benefits.   Betty should not be making the purchase decision based on price!  Price should never be the deciding factor in the purchase of a luxury good.

Presumable Brilliant Bob can skillfully compute the cost of the dampening v.s. the benefit of the accelerant.  The drug store knows that a lot of their buyers need it now, and hence has less fear of the dampening.   The big department store knows that most of their Betty’s are skilled shoppers and enjoy the game.   The combinations are numerous.

But one place this leads is the realization one of the many inputs to price setting is the how much discounting head room the seller wants.  So when Amazon raises the price of Amazon Prime to $99 they may hope that Betty thinks this is because it’s become so much better.  More features, valuable, and expensive to deliver.  But I suspect it’s that they decided to play more pricing games with that offering.

So today you can buy Amazon Prime for $67 v.s. $99.  (You’ll need to go read some of the threads in the forums where pricing game player’s hang out to see various schemes for playing that deal well.)

Which means Amazon Prime is now another product about which Betty may mutter “I never pay retail.”

The standard model for economic recessions is that people become nervous and then proceed to hide under the mattress with their money.  That reduces economic demand, which in turn makes everybody more nervous.  What you need is to tempt them, and their money, out of hiding.

If you are a commercial enterprise and you want to tempt people to spend their money you labor to generate more demand for your product.  Demos, freebies, events to entice ’em into the store, advertising, coupons, etc. etc.

Recently I stumbled upon an interesting variation on this.  Like most vendor loyalty clubs, Sears/KMart has a loyalty club where you earn points.  I’m quite impressed by the range of tricks they play with this micro-currency.

For example they use classic intermittent conditioning to train customers to come into the store.  When you enter the store their app, on your smart phone, randomly rewards you with some points.  I got $10 the first time, presumably so I’d be sure to know that visiting the store might be valuable.

For example they used the class trick learned during the great depression that if your want your micro currency to work well you should design it so it loses value if you horde it.  So many of the points you get have a limited lifetime.

One trick they use that I find particularly thought provoking how they pay you to shop.  They have dozens of “contests” where you answer a few questions (“How old is your Vacuum Cleaner?”  “How often do you use your Vacuum Cleaner?” …) and then you must “like” a few items in the Vacuum cleaner section of the catalog.  Having done this you are then entered into a drawing for – oh – a 100$ worth of points.   They actually tell you how many people have entered, so I can see that for a very low cost they got a thousand people to think about their Vacuum Cleaner and browse the catalog for a new one.

It’s a glimpse of the future.  For example the micro currency lets them make micro payments for all kinds of activities that aid their business.  For example 50 points (5 cents) for reporting your weight to their little fitness club.  They also let you register your fitness device or app and get micro-payments for exercise, which only raises the question why it is taking so long for the fitness device makers to sell that service to health insurance companies?

Why don’t airlines or the grocery stores play these games?  Why doesn’t Amazon?  I think mostly because they haven’t realized the potential in their loyalty card/points programs to engage in behavioral gimmicks to train customers and draw customers into the shopping.  But of course to a limited extent they do play these games.

I find the idea that the Government could use techniques along these lines to generate address a recession extremely provocative.   Hire 5% more workers and it enters your firm into a sweepstake for $250 thousand dollars, etc. etc.