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Rational buyers don't exist

So you think you’re making an independent, rational buying decision? Think again.

Contrary to what economists tell us, we rarely use rational criteria to buy goods, services, memberships or even in deciding who to vote for. Dan Ariely’s excellent and highly readable book “Predictably Irrational” gives countless examples of ways we can be manipulated to buy what the seller wants us to buy and how, in his words, we don’t actually know what our preferences are. We are not rational beings who consider all the implications of the choices we make. This is why segmentation and differentiation is a tricky business: direct questions will yield direct answers which are over rationalised and often bear no relation to reality.

One of Mr Ariely’s favourite examples concerns subscription charges for The Economist. Two scenarios were tested among different groups: the first offered an online subscription for $59 and a print + online subscription for $125, while the second offered these two plus a print only subscription, also at $125. The table below shows the choices respondents made in the two scenarios:

When offered, the print only subscription gets no buyers, so it’s an apparently useless offer. Yet its presence has a seriously significant effect on the choices buyers actually make. Offer this “useless” element as part of a bundle and 5 in 6 will buy the bundle. Remove it as an individual option and the proportion of people that buy the bundle falls to 2 in 6. That’s a loss of $66 for every potential subscriber who chooses the online only option. Put another way, for every 100 subscribers the presence of an option that is never bought means The Economist would take an additional $3,432. Of course, if it costs $60 or more per subscriber to produce and distribute the print edition then the publisher may take the scenario 2 option. It’s interesting that we rarely test price options in this way, offering alternative contexts, yet it is clear the seller can, to a significant extent, affect the choices we make by controlling the environment in which we make those choices.