The Science of Communicating & Marketing Your Business

But the discussion wasn't really about the Harry Potter books specifically, it was about the discounts being offered by some booksellers on the most recent Harry Potter book. Dave, one of our researchers, saw it for 37% off. I questioned him about this. Not 30%? Not 33%?

Nope, 37%.

That's an odd number to discount a book. Let me be clearer on this. That's an odd number for a human to discount a book. Right there I thought to myself, "Self, some computer was making a marketing decision."

Some computer was making a decision about exactly how much of a discount was required to get the maximum number of consumers into that brick&mortar chain in order to get them to buy more than one book.

Harry Potter's real wizardry is as a loss-leader.

In fact, it is sold at such a low price that consumers are fools if they don't go out and buy one at that ridiculously price.

And that's its point. To get consumers in the store to buy one at that ridiculously low price. Marketers know that consumers like bargains. They like believing they're getting more for their dollar than the value of their dollar (I discuss this in Reading Virtual Minds, Chapter 8 "Fair-Exchange, or 'You Have to Give as Good as You Get").

What does the manufacturer/supplier/whoever get? First, there are consumers who will go into the store and just purchase the loss leader, maybe two and maybe more. The number of consumers who'll do that is a relatively small number.

The much larger number -- and the number that sales and marketing is relying on -- is that of consumers who'll go in to purchase the loss leader and, thinking they've scored an incredible bargain, will purchase a bunch of other things at the regular and sometimes slightly inflated price. Grocery stores have been doing this for as long as grocery stores have existed. There are Babylonian tablets that no doubt hung in front of Babylonian merchants that offered discounts on wine in order to get you to purchase bread.

For that matter, there are probably stone tablets offering to sell Babylonians grain grinding wheels at cost just so the shopkeeper could sell grain on a regular basis (think shavers and razor blades, computer printers and printing supplies, ...).

Marketers also know that there's a limit on what loss leaders can do in the consumers' psyche. Auto dealers will offer a loss leader to upsell you on features or a different vehicle. But what about Maybachs?

For those who don't know, Maybachs are just the other side of "you'll never be able to afford one of these" cars. I usually describe them with "What a BMW 760Li is to a Ford Focus, a Maybach 62S is to a BMW 760Li."

Now we're talking true consumer psychology. People able to purchase these and similar items don't want a loss leader. It would offend them. They don't mind getting a deal, they just want to pay through the nose for it. They are being sold an idea of elegance, exclusivity and they want to pay for that idea. They don't want to pay for elegance or exclusivity per se, just the idea of it. And at any price.

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