Have you ever stuffed envelopes for a living? I did once, and let me tell you, it’s even less fun than you think. For weeks, I spent my days and nights mailing out earbuds, laser pointers and other trinkets. To make matters worse, I had to beg my wife and co-workers to help or I would have never finished. They hated my guts and cursed my name every time they got another paper cut, all in the name of science.
As part of a research project, I wanted to find out if people were more likely to buy something when they have “worked” for it. So we offered some people the opportunity to buy a little trinket for $4.99, and then we asked other people to fill out a brief survey for the opportunity to buy the same item for $4.99.
Willing to pay more
Guess what happened? Not many people wanted a $4.99 laser pointer by itself, but a UPS truckload of folks bought one after completing the survey.
It’s completely irrational: the “price” of the first option was just $4.99, but the price of the second option was $4.99 plus the time and effort it took to complete the survey. People willingly chose to pay more (in terms of money and time) and bought something that they didn’t even really want when the item stood alone. I never really thought either offer would be something people were interested in, and thus vastly underestimated how many envelopes full of trinkets I would need to stuff.
The explanation for all this irrational behavior stems from perceived value, and I’ve since learned that the way humans value various objects is full of inconsistencies. When the only factor was cash, people generally decided that the trinket was not worth $4.99. But when presented in a different way, as a reward for completing a survey, the equation changed. Suddenly, it seemed as if the trinket was a reward in exchange for the time and effort put into the survey, which was perceived to have been worth more than $4.99. People ascribed the value of their effort to the trinket.
What the experiment showed is that, paradoxically, people will pay more money and perceive a higher value if they have to do something to “earn” a product or service.
People want to earn rewards
Retailers take advantage of this phenomenon by offering products or services that you have to earn. Have you ever been offered a chance to buy a special product at a special price if you spend a certain amount? For example, if you spend $100 you have the option of “unlocking” another product that you can buy at a discount, maybe $10 for something regularly priced at $20. And how many of you with children have bought needless boxes of cereal for the 10-cent prize in the box. There is a reason printed coupons still exist — all that effort to cut them out translates into a lopsided value equation.
Many grocery stores offer a lower price if you have a loyalty card. Never mind that membership is free and all you have to do to be a member is fill out some basic information. We assume that the value of the object is actually the regular price and that we are getting a good deal because of the effort that we have put into becoming a member.
As with all psychological tricks, the way to avoid them is to be aware of what you’re up against. Retailers are not in the business of rewarding you for your hard work. “Free” gifts are worth exactly what you paid for them, and you can bet that something you paid $4.99 for is worth less than that. If you can look at an item and its cost alone, regardless of any effort you have made to earn the “opportunity” to buy it, you’ll be better off.
Turns out that people who bought our laser pointers or earbuds would have been better off without them, too. Many were defective, and then — you guessed it — I found myself stuffing yet another envelope. It got so bad that we begged people not to send back the defective products, as Goodwill wouldn’t even take them; we just sent them new ones on trust! Buyer beware; scientists be damned.
Jeff Stibel is vice chairman of Dun & Bradstreet, a partner of Bryant Stibel and an entrepreneur who also happens to be a brain scientist. He is the USA TODAY bestselling author of Breakpoint and Wired for Thought. Follow him on Twitter at @stibel.