[HN Gopher] Show your costs to boost sales
___________________________________________________________________
Show your costs to boost sales
Author : tdmckinlay
Score : 187 points
Date : 2021-04-29 12:16 UTC (10 hours ago)
(HTM) web link (tips.ariyh.com)
(TXT) w3m dump (tips.ariyh.com)
| tyrex2017 wrote:
| omg, brace for BS marketers start putting fake cost numbers on
| their products to boost sales..
| pc86 wrote:
| Wouldn't that be illegal?
| LeifCarrotson wrote:
| Yes, your point? That's never stopped them before!
| gpm wrote:
| Outright lies would be, but hollywood accounting is a thing
| even when the relationship is adversarial.
|
| For example set up two companies, company 1 purchases the
| ingredients for cheap, does some minor amount of work on
| them, and sells them to company 2 for way too much money.
| Company 2 then turns them into soup and makes 0 profit. Cost
| breakdown on the soup makes it look like the ingredients were
| really expensive, but actually it's just that company 1 is
| making the profit instead of company 2, and they happen to
| have the same owners. (Note: Not legal advice... I don't know
| if this exact scheme would be legal, but I'm pretty sure
| schemes like it would be).
| gamblor956 wrote:
| Within a single country, legal, since ultimately the same
| tax is paid and Corp 2 isn't lying about its expenses.
| (Corporate income taxes are usually flat rates, not
| progressive/step rates, and most corporate groups file a
| single consolidated return for the entire group.)
|
| Across borders, it would be a huge violation of transfer
| pricing laws and result in huge penalties. But the
| marketing part of it would still be legal.
|
| What you've described is actually pretty similar to how
| Coke/Pepsi is sold: Company 1 (Coke/Pepsi) makes the syrup,
| which they sell for inflated prices to Company 2 (the
| bottler/distributor), which then sells it to a store
| (Company 3) for a less-inflated wholesale price, and the
| store usually sells it at very small markup as a loss-
| leader.
| andrewseanryan wrote:
| Interesting idea but I have serious doubts that those who eat in
| the Harvard canteen are a good representation of the general
| public.
| PedroBatista wrote:
| I'd like to see how this actually plays out in real life, aka.
| people buying instead of saying they would buy.
|
| Also, for "regular" physical goods it's more or less easy to do
| the cost break down in a clear way, but what about services and
| software?
| Pfhreak wrote:
| What's the incentive for companies to be truthful? Why wouldn't I
| claim higher costs for ingredients or labor?
|
| And why doesn't the price include things like money paid to
| shareholders and ceo?
| londons_explore wrote:
| Most "premium" products costs are mostly Advertising, R&D, paying
| employees/shareholders, etc. They're valid things to spend money
| on, but don't reflect the "top quality ingredients" that
| consumers expect the money to be spent on.
|
| I suspect many consumers wouldn't like to know that the $1500
| iPhone they just bought only has $400 worth of actual parts in.
| 55555 wrote:
| Exactly this. A lot of consumer gadgets that cost $60 involve
| spending $30 on ads.
| devoutsalsa wrote:
| I'm willing to buy a $1500 phone w/ $400 in parts because it
| has a better user experience than $150 phone with $50 worth of
| parts.
| weird-eye-issue wrote:
| Why are you comparing a $1500 phone and a $150 phone? And how
| is that even relevant?
| molszanski wrote:
| Totally agree.
|
| I am too, willing to buy a $300 000 car w/ $100 000 in parts
| because it has a better user experience than a $30 000 car
| with $10 000 worth of parts.
| Uehreka wrote:
| I agree with the gist of this comment, but not the numbers. I
| don't have sources to hand at the moment, but while Apple's
| margins are notoriously high, they're not that high. OLED
| screens are quite expensive.
| LeifCarrotson wrote:
| Here's a source that says the cost is $415. You're right that
| the OLED is expensive, it costs $23 more than the LCD it
| replaces.
|
| https://www.counterpointresearch.com/bom-analysis-
| iphone-12-...
| londons_explore wrote:
| It should be taken with a massive grain of salt, but [1]
| suggests $431 BOM cost for an iPhone 12 Pro.
|
| [1]: https://www.counterpointresearch.com/bom-analysis-
| iphone-12-...
| me_me_me wrote:
| > only has $400 worth of actual parts in
|
| Heh. Yeah 400 ;)
| elboru wrote:
| To be honest I don't pay for expensive parts, I don't really
| care if they cost $100. Instead I pay for a final product that
| can last me more than 2 years without becoming crap. I bought
| my first iPhone 4 years ago, today it works like the first day
| (I only had to replace the battery a few months ago). I never
| experienced that from any Android, I'm not saying there aren't
| good quality Android phones out there, but I never found it and
| I got tired of not finding it. If another brand can give me
| that same reliability and for less money I'll happily and
| quickly switch.
| vntok wrote:
| Try any Samsung Sx product. You won't even have to replace
| their battery after only 4 years.
| pwned1 wrote:
| But that reflects an ignorance of how cost accounting works.
| Sure, it might include $400 of parts, but a hell of a lot of
| R&D, equipment, labor, and overhead are amortized into that
| phone. A very cursory look at Apple's latest income statements
| shows that the net profit margin on their revenue is about 20%,
| meaning that the phone's actual cost to produce is somewhere
| around $1200 (assuming a $1500 retail cost).
| HeyLaughingBoy wrote:
| [deleted] Responded to wrong person.
| londons_explore wrote:
| Yes, but will you be the one to explain that cost accounting
| to each buyer?
|
| "Yes Maaam, we'll spend $200 of the money you're about to
| give us on a fancy campus with hammocks to try to attract
| good engineers. Oh, and the massive billboard outside that
| made you walk into the shop in the first place."
| lizardmancan wrote:
| $1 for labor
|
| > For the effect to work, the cost disclosure must be
| voluntary, not forced (e.g. by regulation).
|
| A logical conclusion from the study.</sarcasm>
| HeyLaughingBoy wrote:
| TBH, I've consistently found that "average people" have a
| better intuitive understanding of costs/profit than the
| average engineer. That may sound strange, at least it does
| to me, but I've noticed it for as long as I've been in this
| profession.
| EricE wrote:
| Yes - I was listening to a tech podcast and they thought
| that Apple earned 20% on the accessories and products
| from other companies that they sell in the physical Apple
| stores.
|
| It was cringeworthy.
| Cederfjard wrote:
| How has this manifested itself? Where do you see that
| engineers tend to go wrong?
| HeyLaughingBoy wrote:
| This was not an easy question to answer :-)
|
| I guess what I've noticed is that although if you pressed
| them, engineers (across a range of fields) understand
| that businesses need to generate a healthy profit to stay
| afloat, they still seem to be uncomfortable with the idea
| of "profit" at all. And they seem to be surprised when
| you bring up the question of "how will you make money
| from that?" Whereas the "general public" tends to think
| of it with an approach of "make as much money from it as
| you can because it might not last."
|
| I know that's not a very good description but it's the
| best I can do at the moment.
| 1123581321 wrote:
| That sort of item might benefit from displaying upfront costs
| instead of BoM. It'd be an interesting study.
| chadash wrote:
| Point taken, but perhaps a bad example. When I buy an iPhone,
| I'm paying a little for materials, but mostly I'm purchasing
| the culmination of tens of billions of dollars of R&D that
| possibly surpasses any other product on Earth.
|
| A better example might be a luxury brand wallet where they sell
| the illusion of better quality, but that may or may not be
| true.
| pydry wrote:
| Luxury brand wallet owners feel much the same way about their
| wallets that you do about your iPhone.
| Swenrekcah wrote:
| Perhaps, but I think most luxury brand buyers fall into one
| of two categories:
|
| 1) They are paying more for quality materials, durability
| and perhaps a hand-made feel (that may or may not be in
| line with reality).
|
| 2) They are paying more so that they can get something that
| most others can't only because it's too expensive.
|
| I really can't believe that people who buy $2000 handbags
| think that the handbag company is doing any R&D into
| handbags.
|
| But perhaps they do...
| pydry wrote:
| You can replace R&D with trust, material quality,
| worksmanship or some other ethereal hard to pin down
| quality.
| Frost1x wrote:
| >I suspect many consumers wouldn't like to know that the
| $1500 iPhone they just bought only has $400 worth of actual
| parts in.
|
| This is neglecting software development, maintenance, new
| features rolled out, etc. Yes, you're overpaying beyond
| cost, Apple would go out of business if you weren't. The
| question is are you overpaying for the functionality or
| value you get out of the product/service and are the
| margins too fluffy.
|
| In the case of a designer wallet or velben goods in
| general, you're really paying for the status and symbolism
| in the inflated margins. This may be true of _some_ iPhone
| owners who don 't use their phone or buy one every quarter
| but not most, they're getting utility and value out of the
| devices that's likely worth the cost.
|
| Velben goods get a bit complex as well because of
| intangible value in social situations. Sure, that designer
| wallet is a waste of money. My $10 leather wallet does the
| same thing and is probably more durable (even blocks RFID,
| yay). There is much theater to life, however, and velben
| goods can land you in situations surrounded by those will
| wealth that leads to opportunities you might not otherwise
| have.
|
| Impression and perception is difficult to assess value
| (advertising and marketing in business sure think its
| valuable), but you'll find you may get bumped in lines,
| have better service, land a job, or something else all
| because of such social impressions. This is the entire
| reason people don't wear flip-flops, athletic shorts, and
| t-shirts into the office or interviews and why some people
| carry thousands of dollar hand bags around. The question
| is: what's your ROI on these impressions? It's difficult to
| measure and frankly to me seems typically like a net loss.
| I personally think it's crazy and could care less if you
| waste money to flaunt wealth or play status games, but I've
| witnessed the effects first hand of success in this realm
| to not completely discard the intangible value that may
| exist.
| pydry wrote:
| >In the case of a designer wallet or velben goods in
| general, you're really paying for the status and
| symbolism in the inflated margins. This may be true of
| some iPhone owners.
|
| Or indeed, most.
|
| Apple is hardly shy about marketing itself as a purveyor
| of luxury goods.
| EricE wrote:
| >Apple is hardly shy about marketing itself as a purveyor
| of luxury goods.
|
| And why would they?
|
| Should they instead market themselves as a purveyor of
| shit goods? Sounds like a sure fire way to increase sales
| /s
| HeyLaughingBoy wrote:
| OK, now how do you think a non-technical person with no
| interest in R&D (or even knowledge of the term) would react
| to the question of why they buy an iPhone.
|
| I suspect that you'd find the iPhone purchase motivation is
| pretty much the same as the luxury wallet.
| pizzaowl wrote:
| I think this would actually work even if forced by regulators,
| assuming the company is honest and publishes reasonable numbers.
|
| I worry about companies lying to make numbers more "realistic" to
| customers or to hide marketing spend.
| rustypython wrote:
| I think this generally works, at least as a justification for
| price increases (if your suppliers increase their price, people
| don't blame you for increasing yours). But this is also true:
|
| > Extremely high profit margins (>55%) could trigger a negative
| reaction, although this was not tested.
|
| We don't see Google talking much about its costs, for instance.
| atleta wrote:
| Maybe it works for products and services that are priced based on
| the costs (i.e. cost + a competitive margin). Not so much if you
| can do a value based pricing. Which is the case when you don't
| have too much competition, when you're not selling a commodity.
| jrwoodruff wrote:
| This seems like a great marketing technique for up starts trying
| to compete in the quality/price space. In the chicken soup
| example, for instance, cost to produce is a strong indicator that
| the soup has quality ingredients, and isn't just a big markup on
| some generic condensed soup.
|
| It's a similar thing with the backpack, but in the other
| direction - this price isn't low because we cheaped out on
| manufacturing and materials, it's cheaper than J. Crew because
| they spend too much on marketing.
|
| The line item cost breakdown is an indicator of honesty and
| product quality, which of course increase trust. That's not going
| to work if you're selling $10 shirts for $120
| jkestner wrote:
| Upstarts, perhaps. Startups, I wonder if seeing that the $50
| gadget costs $60 to make will have a positive impact. It may
| signal that the cost is being subsidized by investors (and the
| business may disappear) or by selling your data. But I'm all
| for transparency to make better decisions.
| infogulch wrote:
| Well then the presence of a cost breakdown becomes a selling
| point. If the price of your product is unusually low compared
| to your competitors that openly display their costs and you
| don't, maybe that would raise some (deserved) suspicion that
| something else is going on.
| lupire wrote:
| The shirt costs $70 in "labor" of the CEO.
| fencepost wrote:
| The thing that jumps out at me is that I _don 't believe_ the
| numbers presented in their main example. $0.26 for the noodles in
| a single bowl of soup? What are they doing, hand making fresh
| noodles from artisanally grown heirloom grain hand harvested by
| fully tenured professors at their normal hourly rate?
| lastofthemojito wrote:
| There's a very fancy, very expensive hotel in Newfoundland that I
| was lusting over recently. Anyhow, I saw an "Economic Nutrition"
| panel on their website, formatted similarly to the familiar
| Nutrition Facts panel seen on food packaging. They break down the
| cost of a stay into categories (Labor, Marketing, etc) and by
| geographic areas that benefit. It's an interesting technique ...
| although it did not convince me to actually book a stay at the
| $2000/night hotel.
|
| https://fogoislandinn.ca/your-stay/suites-rates/
| Black101 wrote:
| That can't be true in all cases.
| neolefty wrote:
| There are a few hypothetical exceptions discussed, but the
| authors were surprised to see that in all the cases they looked
| at, it seemed to help.
|
| > Extremely high profit margins (>55%) could trigger a negative
| reaction, although this was not tested. Likewise, suspiciously
| low margins (e.g. negative or very low) could negatively impact
| the effect of trust that drives increased sales.
| Black101 wrote:
| > Extremely high profit margins (>55%) could trigger a
| negative reaction, although this was not tested.
|
| that seems like the important thing to test to be able to
| make such a broad statement.
| frankbreetz wrote:
| I would say I would be more likely to buy the chocolate, but not
| the chicken soup. The bulk of the cost being an opaque category
| like labor wouldn't sit right with me. I feel like I am being
| tricked. Whose labor? The chef, the server, the farmer, the truck
| driver, the CEO. I think if the broke this category out more it
| would work better.
| GuB-42 wrote:
| If showing your costs puts your product in a good light, then do
| it, if it doesn't, don't. The article just shows that cost
| breakdown is one thing you can use in your marketing.
|
| It is the same as showing where your ingredients come from. No
| product will show "made with GMO corn from the most productive
| industrial farms". If it is shown, it means there is something
| desirable about it.
|
| Transparency isn't always a good thing. I think JCPenney's tried
| it, and it was a huge marketing failure.
| infogulch wrote:
| Many comments here came up with a 'clever' comeback in the form
| of "Oh yeah? What about grossly overpriced product XYZ? I bet it
| wouldn't help _their_ sales. " Well no shit, sherlock. This
| advice isn't for them, it's for their competitor's product ABC
| who is aiming to make an honest product for a fair price. To head
| off such dense comments perhaps a better title would be:
|
| > Show your costs to boost sales _for honest products_
| ssharp wrote:
| I've done substantial amounts of a/b testing and experimentation
| around ecommerce pricing and it's pretty rare for a maxim like
| "show your costs to boost sales" to hold to in either 1) the long
| run or 2) across multiple product types, audience types, brands
| etc.
|
| Especially with something relatively novel like this, results are
| very prone to bias since novelty has the tendency to increase
| purchase-intent in the short-term.
|
| As far as audience, I'd say the audiences of folks interested in
| a $115 wallet, Harvard students, Everlane/J Crew shoppers, and
| craft cocoa buyers are on the more affluent and/or intelligent
| side, which may compound the novelty effect or at least have the
| transparency resonate more.
| moneywoes wrote:
| What do you find works best
| xgulfie wrote:
| Yeah, seeing the cost breakdown for luxury goods like this
| feels totally different than for seeing one for other things,
| like a bottle of Coke or a handmade good from Etsy.
| mistersys wrote:
| Yeah I don't think a cost breakdown on my drop ship products
| on Etsy would increase sales. We roughly double the price vs.
| cost of goods, but it's not like we're rolling in dough
| because at our volume fixed expenses take up a really
| significant amount of our profit.
| offtop5 wrote:
| Yes, whenever I try to buy something if you hide the price behind
| a sales call, I'll just assume it's some absurd amount of money.
| There's no reason to do this, have pricing front and center and
| be honest about it. My dream service would say something like $10
| a month flat rate hosting, and in bold print underneath say it's
| not a promo rate. I think digitalocean does this
| selykg wrote:
| Yup. I had to call iStockPhoto about pricing and the entire
| thing soured me so bad on it that I basically told them I was
| out. I shouldn't have to call to get a price. It wasn't even my
| money and the company would've paid it just the same. But the
| principle of the matter is that if you want to piss customers
| off, hiding information is a clear way to do so.
| ericabiz wrote:
| I used to use and love iStockPhoto. I discovered
| DepositPhotos through an AppSumo deal, switched, and never
| looked back. Even their regular prices are better than iStock
| for similar photos.
| selykg wrote:
| Nice. I'll have a look at this. Thank you!
| yunohn wrote:
| This is not what the article is talking about, at all. This is
| a completely different concept, of showing the input costs for
| FMCG goods.
| Normal_gaussian wrote:
| This is not what the article is about. The article is about
| disclosing cost and profit alongside price.
| okl wrote:
| Hiding the price also makes the whole purchase process more
| costly (time intensive) for the buyer and it prevents impulse
| buying.
| sodality2 wrote:
| This is regarding costs to produce items, not prices.
| suprfsat wrote:
| Clicking the link to read the article is absolutely free, give
| it a try.
| brobdingnagians wrote:
| Same, if I have a choice between a service that shows the price
| and one that doesn't show the price, I tend to prefer the one
| that shows the price with the assumption that the one without
| the price is probably only catering to very large businesses
| and/or is trying to price gouge me for whatever they can get,
| which doesn't sit well with me.
| blinding-streak wrote:
| The article is interesting and all, but the fact that I had to
| wade through 3 separate "subscribe to our newsletter!" sections
| before even getting to the start of the real content is
| ridiculous.
|
| I counted a total of 6 different places where the user is asked
| to sign up for something or take some sort of action. Good lord.
| gertlex wrote:
| I didn't even read the page ultimately, since I couldn't
| identify where to start reading.
|
| Roughly every half screen of scrolling, the content formatting
| changes dramatically (and clearly some of it was subscription
| info, which is not how I want to start reading), and then I was
| at the end of the page... I'd failed to identify the "body" of
| the article and so closed that tab.
| vincentmarle wrote:
| It worked for me, I did sign up.
| blackshaw wrote:
| Substack makes it way too easy to fill your articles with
| "Subscribe" and "Share" buttons; you can do it with one click.
| Veuxdo wrote:
| Sadly this is standard practice now on every "website" out
| there.
| unobatbayar wrote:
| Would love this try this, but seems difficult for software
| products. Stating server costs etc might be a good start?
| erikprotagonist wrote:
| I used to work with a IT service provider (hardware, support,
| monitoring, help desk etc) which had to me an interesting pricing
| policy on hardware - they were an IBM reseller, so they just sent
| the customer the price list they got from IBM and said they added
| 10% on top of the IBM wholesale price. I guess the 10% covered
| installation and configuration and such.
|
| They did quite well, which probably had a lot to do with coming
| across as honest. Certainly more honest than the kind of vendor
| where you have to ask some guy with a really fancy watch for a
| quote - I've met a couple of those.
| rmason wrote:
| We've got a couple of local BBQ place's funded by proceeds from
| the sale of a local tech company. The founder just posted a video
| on Facebook yesterday explaining why their popular wings were
| being taken off the menu.
|
| He breaks down their exact costs, why they're currently selling
| them at a loss and why they'd have to raise prices 50% to make
| the dish profitable.
|
| A lot of people were angry when they announced the wings were
| being taken off the menu. Here's his reply, I thought it was
| absolutely brilliant marketing.
|
| https://www.facebook.com/Saddlebackbbq/videos/94074725667252...
| undefined1 wrote:
| great find. it might've been worth increasing the price though,
| to see if customers still bought them or not in practice. with
| a note on the table or menu explaining why the price increased.
| ajkjk wrote:
| want to, uh, just summarize it here?
| rmason wrote:
| The video isn't that long ;<). To summarize basically they
| have three choices:
|
| 1. Increase the price of wings 50%
|
| 2. Cheapen the ingredients
|
| 3. Take it off the menu until the price of ingredients drop
|
| After surveying their customers they found demand would drop
| drastically if they raised prices. They don't want to cheapen
| the ingredients because it would hurt their brand so the only
| real choice was to take them off the menu.
| throwawayboise wrote:
| There's another choice, they could opt to continue selling
| the wings at a loss, if that created goodwill or especially
| if it promoted the sale of other profitable items (e.g.
| drinks, other side items). This is called a "loss leader"
| and is a common marketing play seen in supermarkets.
| Vaslo wrote:
| Yes it's always a great idea to boast about my costs, that way my
| competitors can see my cost structure and margin to undercut me!
| Iv wrote:
| > Extremely high profit margins (>55%) could trigger a negative
| reaction, although this was not tested. Likewise, suspiciously
| low margins (e.g. negative or very low) could negatively impact
| the effect of trust that drives increased sales.
| Gustomaximus wrote:
| In a more business sense, Id say this is a mixed bag.
|
| I have some clients I'm extremely open with about team and jobs
| costs. Usually more experienced people who know we're all here to
| make a dollar, know a good job isn't the cheapest, know
| everything looks simpler before you actually do it. Generally
| operate on my preferred methodology of 'everyone be reasonable'.
|
| With some people, not always but often more junior, I limit
| detail. Some people want to micro manage quote breakdown pricing,
| question and screw down individual costs to the bone. Or use your
| details to improve their job plan and go to the next vendor and
| see if they can get it a bit cheaper. Etc. So when you know these
| people or feels like it will be, as few lines as possible is
| best.
| cody3222 wrote:
| "People said they were 14.2% more likely to buy this chocolate
| bar when they were shown the version with a cost breakdown."
|
| What people say they would do and what they actually do are 2
| very different things.
|
| The conversion rate of _actual_ behavior needs to be tested for
| this to mean something useful.
| yunohn wrote:
| Exactly this. Plus, I didn't see "profit" mentioned anywhere in
| the costs, and the article also touches upon the (mostly
| obvious) fact that for high margin goods this would impact them
| negatively.
| tdmckinlay wrote:
| The effect was tested on profit margins as low as 17% and as
| high as 55%. Outside those ranges it's unclear if it will
| still work.
| yunohn wrote:
| I understand, so maybe my critique was a bit of my personal
| views.
|
| Rather I meant that it's a bit odd that costs are clearly
| specified, but the consumer has to calculate the profit
| themselves. In my mind, that actually makes it less
| transparent as high profit margins are what drive the crazy
| capitalist market we have today, and associating small
| values to material and labor doesn't make me feel better
| when the profit is the "artificial" portion of my purchase
| price.
| mitchdoogle wrote:
| I think the assumption is whatever the difference in what the
| item costs vs the total listed on the package is the profit
| edent wrote:
| As it says in the article "Sales of chicken noodle soup bowls
| ($4.95) in Harvard's campus canteen increased 21.1%"
| tyingq wrote:
| Interesting. I'm curious how they got to $3.23 of labor for
| 16 ounces. And I suppose that drops as they sell more,
| assuming it's made in large batches.
| lupire wrote:
| There's no reason to believe the costs are accurate at all.
| Obviously a business would lie if they applied this theory
| to their pricing. The experiment was based on the presence
| and magnitude of numbers in the advertising.
| giu wrote:
| Good point! Sadly, I don't have access to the Harvard study
| (https://pubsonline.informs.org/doi/10.1287/mksc.2019.1200), so
| maybe someone with access to it could check it, but the linked
| article might be misleading in some aspects (depending on the
| results of the study shown in the paper).
|
| From the study's abstract:
|
| > A preregistered field experiment indicated that diners were
| 21.1% more likely to buy a bowl of chicken noodle soup when a
| sign revealing its ingredients also included the cafeteria's
| costs to make it.
|
| From the linked article's sub-title:
|
| > Sales of a chicken noodle soup increased 21.1% when people
| were shown the costs of making it.
|
| The study's abstract mentions that they were more likely to buy
| a bowl of chicken; it's not mentioned that they actually bought
| it.
| tuukkah wrote:
| Here's open access to the full study:
| http://ssrn.com/abstract=2498174
| tuukkah wrote:
| "21.1% more likely" is how articles phrase a 21.1% increase
| in observed frequency.
|
| "Sales increased 21.1%" is equivalent as long as the unit
| price remained the same.
| vntok wrote:
| The article is very confusing on this front.
|
| > People said they were 14.2% more likely to buy this
| chocolate bar when they were shown the version with a cost
| breakdown
|
| Surely that cannot be correct. Possibly 14.2% of the people
| who were asked _said_ that they would be "somewhat" more
| likely to buy X with more data stuck to its label (does
| _any_ data improve sales? Did they A /B the label by adding
| random info?). This is very different from them acting upon
| it though.
| tuukkah wrote:
| Actually, the figure 14.2% does not even appear in the
| research article. The experiment was between two groups
| of random Mechanical Turk workers: one group was not
| shown the cost breakdown while the other group was. The
| workers answered how likely they were to buy the product
| _on a scale from 1 to 7_. If you calculate the average
| increase from one group to the other, sure enough the
| number you get is 14.2% but it is not a probability.
| Taylor_OD wrote:
| Sure. You could call pretty much all research into question
| using this argument. A huge amount of research is done based on
| questionnaires.
| elliekelly wrote:
| It's been a while since I worked retail but unless something
| has drastically changed most people don't read product
| packaging very closely. I would constantly have people walk up
| to me with an item and ask a question that was not only clearly
| answered on the package, but the information was _highlighted_
| for them. I just don't think most people would even notice the
| cost breakdown let alone read it and think about what the
| information means.
| darkerside wrote:
| People have been ignoring the highlighted bullshit on the
| package since long before they were pop-up ads on the
| internet
| gpm wrote:
| You're sure it's most people? The people coming to ask you
| questions are a self selected set...
| chiefofgxbxl wrote:
| Is there an official name for this sort of effect? I've been
| looking for something to call this. For example, we've had this
| effect at work when trying to organize social outings; people
| _say_ they 're interested in some activity X (e.g. hiking,
| board games, etc.), but then the day of that event comes and
| nobody shows up. The bar is very low to say you're interested
| in something, but _doing_ actually takes effort.
| benjohnson wrote:
| We fight this by giving everybody a token bit of public labor
| - tell someone they need to bring cookies, another needs to
| bring party-hats and someone else to bring punch and you'll
| find that they don't want to let others down.
| johnsmith4739 wrote:
| Social Conformity - it would be costly for the participants
| to say no, from a social standpoint, but when the wallets
| have to open, there is always an excuse.
| porb121 wrote:
| expressed vs revealed preference
| tdmckinlay wrote:
| Author of the summary here:
|
| You are right regarding the chocolate bar experiment.
|
| That's why the researchers ran multiple experiments, some of
| which measured actual behavior:
|
| - People were 16.1% more likely to bid for a gift card for an
| Everlane backpack (vs a J.Crew one) when they saw cost
| information about it
|
| - Sales of chicken noodle soup bowls ($4.95) in Harvard's
| campus canteen increased 21.1% when costs were disclosed
| Wassimo wrote:
| Chicken Nood Soup bowls for $4.95? Don't they usually sell
| for a buck at the grocery store? Unless it's a high end
| brand.
| istjohn wrote:
| This was in a cafeteria.
| edoceo wrote:
| At Harvard
| smeyer wrote:
| Most of the cost was labor, according to the picture in the
| article. I don't know which dining hall or cafe the
| "canteen" they're referring to is, but much of the food
| sold on Harvard's campus is produced by unionized dining
| hall staff with decent pay, hours, and benefits, which
| affects the costs.
| klipt wrote:
| Personally I could see that information back firing, some
| places are very stingy with ingredients like chicken, and
| I'd feel doubly cheated if they did that after admitting
| it's only 5% of their total cost!
| robinj6 wrote:
| I'll bet the Harvard students saw a new fancy chicken bowl
| and bought it out of novelty.
| shoto_io wrote:
| Hi Thomas, thanks for your work. I am a fan!
|
| Just a minor comment: I find using decimals places (like
| 16.1% and 21.1%) in human experiments pretty irritating. It
| feels like false precision.
|
| After all, these experiments must have confidence intervals.
| If I had to guess, I'd assume at least a +/- 5 ppts
| variability in all these numbers.
|
| What's your view on that?
| tdmckinlay wrote:
| Thank you so much!
|
| I agree that the figures can vary for many reasons and we
| shouldn't expect them to be exactly the same (some things
| we don't end up controlling for).
|
| At the same time, if we take the experiment of the soup for
| example:
|
| They measured 9,227 sales of it so the 21.1% increase is
| quite robust and I'd expect the error margin to be much
| lower than 5% either way - so in some ways the precision is
| warranted.
|
| I also feel that if I were to round a 21.4% to 20% I'd be
| miscommunicating the findings of the research :)
| lupire wrote:
| You are confusing confidence intervals (used to say that
| you are confident the increase is positive at all) with
| error margin (the false precision in the 3rd significant
| figure).
| vntok wrote:
| That does not bode well for the rest of the
| methodology...
| johnsmith4739 wrote:
| I don't know why people downvote you:
|
| //> we finally have an absolute number of sales measured,
| but no way of knowing - representing all sales within a
| period or just cherry picked?
|
| //> for the rest of the population, did it reduced sales?
|
| //> was there any randomised test or not, because in the
| latter case there could be other biases we're unaware of
|
| //> the increase is compared to what exactly?
|
| //> any WHY is purely speculative as what was measured
| was WHAT people did. Internal motivation is in this case
| unproven, there is just a potential correlation.
|
| //> confuses me to hell people taking about error margins
| and confidence intervals for something measured directly.
| tdmckinlay wrote:
| You are right, my bad! Thanks for catching that in the
| comment above, I've updated it
| rahimnathwani wrote:
| "if I were to round a 21.4% to 20%"
|
| Right, but you'd round 21.4% to 21%, not to 20%.
| pushrax wrote:
| Or ideally keep 21.4% and include the 95% CI. There's
| nothing misleading about the extra precision when the CI
| is included.
| yowlingcat wrote:
| Agreed. Actually, I wish the norm was to communicate
| percentages with confidence intervals by default, because
| I feel like the tacit implication is colloquially "100%
| CI unless communicated otherwise."
| infogulch wrote:
| You're assuming that you can only round to the nearest 1%
| which is not true at all. If you round to the nearest
| confidence interval and the CI is 5% then you would round
| to 20%. That said, I would prefer both the precise number
| and CI communicated together like sibling comment
| mentions.
| shoto_io wrote:
| Thanks for explaining! Your point about miscommunication
| makes a lot sense to me!
| bachmeier wrote:
| > I find using decimals places (like 16.1% and 21.1%) in
| human experiments pretty irritating. It feels like false
| precision.
|
| Whether you say 21.1%, 21%, or 20%, you still have a single
| number. You could make an argument that decimal places like
| 21.147258% add clutter, but without an actual measure of
| uncertainty, all you're doing is reporting a summary of the
| data in the sample with different amounts of arbitrary
| rounding. That's not particularly helpful as a substitute
| for the full distribution.
| shoto_io wrote:
| 21.1% is implying a different confidence interval than
| 21%. At least to me.
| ceh123 wrote:
| Yup, 21% and 21.0% do implicitly convey different
| information even though they're the same number.
| yuliyp wrote:
| It's not just a number. It's a string of characters
| conveying information about a measured value. The way
| it's specified conveys information about the number of
| significant figures
| (https://en.wikipedia.org/wiki/Significant_figures).
| phreeza wrote:
| Significant figures are not a universal standard, they
| are an imperfect way to in-band information about
| confidence, by sacrificing precision.
| CodeWriter23 wrote:
| It's kind of lazy of you to disclose the Backpack and Chicken
| Soup cases in a declarative way. You present no references,
| no drill-down on whether all other effects were equal in
| these cases. For example, did chicken soup sales continue for
| an extended period of time and were not driven by other
| factors such as "a cold going around" or low temperatures?
| Trust is certainly a factor in consumer behavior, but it
| nowhere near the sole factor in decision-making that your
| 'summary' tries to present it as.
|
| You're also lacking cases where the markup is high, 500-2000%
| is common among a wide range of products, from Fashion to
| SaaS.
|
| Edit: I'd also add, in the case of food products, if all
| vendors adopted the transparency strategy, once consumers see
| typical margins in that industry are in the 5-10% range,
| suddenly that not-unreasonably-priced organic chocolate bar
| looks like a high margin item...
| dimitrios1 wrote:
| It's also equally lazy for you to demand such an in depth
| and thorough argument and sources when you can pop into a
| search browser and do some fact checking yourself. No one
| owes you anything. This is a discussion board, not a
| dissertation defense.
| readflaggedcomm wrote:
| FWIW, the paper "Lifting the Veil: The Benefits of Cost
| Transparency" doesn't mention confounding factors like
| weather or temperature, only the possibility of revealing
| labor costs. "Fact checking" this study would require
| reproducing it, not searching the web.
| marcinzm wrote:
| >No one owes you anything.
|
| and no one owes the author page views or their time
| either.
|
| >This is a discussion board
|
| Exactly, we're having a discussion on what the article is
| missing and why it matters.
| CodeWriter23 wrote:
| I came up in a time where merit meant something. And this
| summary literally has no merit at all.
| johnsmith4739 wrote:
| Sorry for the downvotes you get, it's appalling. The whole
| piece is superficial and riddled with inconsistencies. I
| guess we can take it as entertainment? It's what non-
| marketers think a growth marketer does, just put in text
| form. I'm not here to make friends, but if you state that
| you got 21% increase, you better show the work. In a world
| where everybody lies, you better have proof.
| renewiltord wrote:
| Honestly, I downvoted because most of the utility in
| these articles to me isn't the precise number, it's the
| idea. After all, I don't really care that chocolate bars
| work this way if I'm selling a SaaS product. I'm going to
| run the numbers myself.
|
| It's the idea that this _could_ work.
|
| I want to encourage people to honestly communicate ideas
| to me and I want to discourage people who would
| discourage those first people.
|
| I explicitly _don 't_ want to restrict only the highest-
| quality research. I want to permit some amount of
| scamming me.
| djrogers wrote:
| > - Sales of chicken noodle soup bowls ($4.95) in Harvard's
| campus canteen increased 21.1% when costs were disclosed
|
| What sales decreased in relation to this? Would overall sales
| increase if _all_ food items had costs listed? Or would
| people gravitate to the meals with the lowest margins,
| figuring them to be relative bargains?
|
| It's really not simple to draw a conclusion from the limited
| data set here.
| bbarn wrote:
| What about the "guilt effect" of showing that the high price
| is mostly because of the labor costs involved. Wouldn't that
| potentially dirty your experiment of just showing "cost" vs.
| involving a human element?
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