09
Apr
11

Groupon genius

I wrote about some things that turn me off about Groupon here but I opened up my email today and saw something I could really use — a huge discount on prescription eyewear. Yea — philosophers need glasses like NBA players need shoes. Still though, I realized I needed to look into exactly what I was entitled to with this. Would they grind my lens to fit the frames, or is it just the frames. Would they order new lens, because that would make me rush out and get a new prescription probably because my eyes are always decaying from reading and writing so much.

But this is just part of why Groupon is smart, because it is an enforced limited discount period. Consider how many commercials say “this offer won’t last long so act now.” What is the idea behind that? Well the idea is that people will make worse decisions about their own welfare when you put them under stress or strain their cognitive abilities. Also, the sense of urgency triggers a psychological attraction to the product.

More colloquially, this is why we have such a thing as impulse buys. The stuff near the register — candy and gum — is designed to make you drop a few extra dollars at the last second in response to a capricious psychological need for sugar. The quicker and easier you can make it for customers to indulge these whims, the more crap you’ll sell.

Groupon uses this phenomenon in an interesting way. At the candy store rack, the driver is quickness. You’re already AT the cashier and your wallet is already OUT. Why not throw down some extra $. With Groupon, the strategy is commitment. The deal is only on for a limited period of time, encouraging you to jump on within about 24 hours. Since most people are busy you probably don’t get a chance to really sit down and think about if you’re going to use your groupon for skydiving or whatever weird activity they’re offering.

These sorts of psychological levers of manipulation though is why capitalism is never going to be welfare optimizing, even on it’s own terms (using its own measure of utility, which is preference satisfaction). What I mean is that if consumers were largely immune to this kind of psychological gamesmanship, there would be no wasted money on gambling (except just people who want to lose a little money for fun, which might be a lot of the gamblers — but what about the depressed grannies at the slot machines?) no money expended on scammy “all-natural” supplements, obviously flawed exercise machines, candy at checkout lines, and a bunch of other low-grade frivolous crap that seems good to buy at the time but on reflection, isn’t.

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