Imagine you walk into a movie theater with the intention of buying a ticket to see a show. You discover that the theater now has two different pricing tiers for seats: seats near the front or back are 20 dollars, and seats in the middle of the theater are 25.
The theater could present this pricing differential to you in a few different ways. Here are two possibilities – read them both and tell me which one made you feel generally better:
- “Ticket Price: $25. Get five dollars off if you sit near the front!”
- “Ticket Price: $20. Additional $5 fee if you want the good seats.”
I’m guessing that Option #1 made you feel generally happy and Option #2 kind of angered you, if you’re like most people. This is true even though they’re saying the same thing!
When credit cards first became a big thing in the United States, local merchants used to charge a little extra to use them, on account of that merchant having to pay an additional fee to the credit card companies for processing. The credit card companies lobbied to make this illegal; they wanted there to be no difference in pricing to the consumer so people wouldn’t be opposed to using the cards. This got struck down, because business owners are allowed to charge what they want, generally. But the credit card companies had an immediate Plan B lined up; they said if merchants were allowed to charge different prices, they wanted it mandatory that the difference be listed as a “cash discount” not a “credit penalty.”
They understood perfectly well.
Whenever there is a difference between two prices, humans are generally fine if the higher price is the standard and the other is a “discount” for (X). They are generally NOT okay if the lower price is the standard and the other is a “penalty” for (Y). That makes them mad.
Remember that any time you need to present two options to someone. Whichever one is the “more expensive” option should be the default – then offer discounts. Whichever option they pick, they’ll be happier.
The Opportunity Machine 