A Price so Low that it is Illegal

Subjects: Pricing Presentation
Principle: Presenting Payments in Daily Terms Instead of Lump Sum
Potential Worth: Extra sales at no extra effort

With this Smart Idea we fly back to Germany: our good friend Stefano is providing this suggestion. Danke Stefano !

The Deutsche Post (National Postal Service in Germany) is offering small loans of 5,000 Euros (about 6,500$) to be reimbursed in super small 2.9-Euros-a-day (3.5$) payments.

Wow! This looks very interesting; the daily repayment is so low that if you don’t have the money, you can ask your son or daughter to borrow some from them…

The truth of the matter is that the payments have to be for 72 months and the resulting interest rate is 7.99%!

The principle behind this is very smart, so smart that it is illegal to use it in some cases. Payments are presented in daily terms instead of a lump sum: in this way, according to researcher John Gourville (1998), the prospect is more likely to consider the expense as another trivial daily expense instead of a major expense. This is true even if the expense has to be paid in a lump sum: the principle is to show the prospect the “daily amount” angle instead of just the big, scary lump sum.

“Thinking of payments in terms of daily amounts rather than annual amounts is so effective, that civil courts in some jurisdictions do not allow lawyers seeking punitive damages to express to the jury their sought-after compensation in daily amount terms.” says Noah Goldstein in her interesting article on this subject (for the complete article, click here).

So, from tomorrow, you can think twice about the cost of your cappuccino: for just one cappuccino a day, you could fly to Hawaii for your next vacation…

Till next time,

Kramerilio in USA