Do you purchase very often? This mental model could help !

It was already 8 pm and I was waiting for my meeting to end. It was getting late as I had to buy some betel leaves for a ceremony I had next day. As soon as the meeting got over, I went to a bazaar where betel leaves were available at wholesale price. Being novel at buying betel, I assumed the price per kg should be around 200 Rupees (Indian Currency). Wholesale shops are easy to bargain. Thumb rule is to bargain at 10 % – 20% less than initial offered price, unless there is “NO BARGAIN” board. Before I share the incident I faced, I will tell a scenario I read from “Mental Models, Investing, & You”.

Mr.X visits a shop in a bazaar run by two brothers. The Elder brother (Mr.EldBro) is a chief tailor whereas the younger brother (Mr.YongBro) is new to business and holds price list and design catalogues. Mr.X looks for some suits and decides to go for a grey suit. He wears it on top of his white shirt and searches for a mirror. EldBro guides him near the corner which has a big mirror on a pillar. Mr.X asks EldBro “How does it look?”. There is no response. Mr.X asks for 2nd time but no response again. EldBro notices Mr X is trying to say something and says “Pardon me sir, Can you speak up little louder?”. Mr.X asks for 3rd time with a louder tone. EldBro complements “Aha ! You look fabulous sir” with a fake smile. It looks like EldBro had some hearing issues but could not afford a hearing aid.

After some 270 degree turn around himself at the mirror, Mr.X decides to buy that suit. He louds EldBro, “How much does it cost?”.

“This one sir, let me check”, says EldBro and turns towards YongBro and shouts “Arey, How much for this suit?”.

YongBro re-shouts “Eight Thousand Rupees”, which was very much audible to Mr.X who had gone inside the trial room by then. Mr.X had seen similar suit in another shop for 7500 Rs. As he was preparing his speech for the bargain and exits the trial room, EldBro informs Mr.X “Sir it costs Six Thousand Rupees”.

Controlling his instinct, Mr. X had his quicker brain in action that was telling him to use this oppurtunity to buy a 8000 Rs suit for 6000 Rs. He hurriedly pays 6000 Rs to EldBro and rushes out from there. What does this scenario tell about Mr. X? Is it rational to use a person’s disability for his own benefit?

Well, let me tell you something. EldBro had sharp ears and he with YongBro manipulated Mr X in selling the suit. YongBro anchors Mr X mind to a higher price. But EldBro offers at a price which is very much less than initial price. Relative comparison tricks Mr X’s mind to buy that suit.

Most of the time, we dont know about the exact price of products. We just compare across relatively and decide about buying it or not. Relative pricing is very common in e-commerce. We are offered an initial price and then site themselves provide coupons and offer codes to claim discount. This type of behavioral bias is called Contrast-Misreaction Tendency (CMT). How often do we face this bias? When you try to subscribe any steaming service platform, you are provided with multiple plans. Lets say you are provided with “One Month, One Year and 3 Year” plans. One Month plan says “300 per month”. One Year plan says “250 per month for 12 months”. 5 Year plan says ” 150 per month for 3 years”. Here the bias manipulate you by comparing per month price across the plans. 300 per month to 250 per month seems to be a reasonable reduction. 250 to 150 per month is a huge reduction. This anchors more for 3 years plan and very less people go for One month plan. Not just in purchasing goods, relative comparison pops in any kind of trade. A broker trying to sell a poor mud land showcases every poorer lands before showing you the actual land. In any kind of advice from sales representatives, they exaggerate things before coming to their actual point of sale.

Now let me share the incident i faced. When I went to buy betel leaves, I was offered 140 Rs per Kg. I bargained and made down to 120 Rs per Kg. When i was about to pay, the shop keeper invited another nearby person who was on a call. Shop keeper informed about my price to that person, who seemed to be the actual owner of the shop. He immediately negated and said “It is 160 Rs per Kg and I cannot sell for 120”.

“What? 160? But i was told 140” I argued.

Now my mind was comparing initial offerings that I forgot 120.

“He is new and he does not know about it. I can make till 150 Rs but not less than that” and he continued on his phone call. After few conversations with the shop keeper, i asked for final price.

“135 Rs just for you” said the owner. I gave up my bargaining power and paid him what he asked for. This technique is to anchor you at different prices higher than the bargained price and then pretend to offer you at the least. Bargaining is very common in India and sellers set a higher price at the beginning so that they sell at intended price after a fake bargain.

While wholesale scenario was face to face, in today’s world we believe the price shown by the websites are the actuals and accept the discounts. Compare across sites and choose the right value. When you can pay less why not go for it.

Sometimes people buy just because they find a discount. You go to buy a sneaker and you find a white shirt priced at 500 bucks after 20% discount and a black shirt at 525 bucks after 25% discount. Along with sneaker we tend to buy a black shirt as 25% discount is rare as per our purchase experience. I would say, have your need in mind and then the price. If at all you have to buy, use this mental model to not believe the initial price or the discount % you are shown. Make your right choice.

Thanks for reading, Have a good day !

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