5 ‘Pro-Consumer’ Moves Secretly Designed Just to Increase Profits

5 Sony’s ‘Free Personalization’ Offer for Laptops

In 2006, Sony introduced a free service to engrave custom text on items like laptops. When you ordered a Vaio notebook or a camera, you could have your name lasered onto it, or the words “Sony sux,” or a bunch of punctuation arranged to form a penis. Actually, they probably didn’t allow those latter two options, but they’d add your name, no problem. 

Some naïve person somewhere might have thought Sony were doing this as a gesture of pure love. The more reasonable business explanation was that this offer encouraged sales, and the cost to Sony was negligible next to the profit from the sale. But Sony had another motive: By customizing the devices this way, the buyer rendered the purchase ineligible for a refund. In two years, Sony saved over $1 million from reduced returns. 

Customers were still allowed to return defective laptops — Sony weren’t being monsters here. Customers couldn’t, however, return these custom purchases because they decided they didn’t want them after all. The vast majority of returned electronics aren’t because of defects but because the customer changes their mind. In 2008 (the year Sony revealed their gains from the laser program), buyers returned 11 to 20 percent of all electronic items they bought, and 95 percent of the returns were when the product had no defect. 

This program had another small benefit. Customizing buyers’ products make them harder to resell, and a weaker secondary market may be good for Sony, too. You can usually find someone to buy your laptop a couple years down the road, but you’ll have more trouble if you’ve permanently emblazoned the rear with “PROPERTY OF CRISSY <3<3.” 

4 A Bunch of Cheap Stuff Just Piled in a Bin

You stop at a gas station and see a bunch of CDs strewn in a pile near checkout. “Whoa, they still sell these?” you say. “My car still has a CD player! I could use this.” It’s clearly a bunch of trash that everyone else is ignoring. So, you fish your hands in and come back with Ultimate Party Mix. You could stream this music for free if you wanted, and you in fact don’t particularly like any of these songs, but you buy it. After all, it’s a bargain. 

Was it a bargain, though? Or did you just assume it was because any products thrown down with so little care have to be cheap?

IKEA, for example, deliberately piles items in this manner to make them look inexpensive, whether or not they really are. By jumbling items in a bin, they give the impression of volume, more volume than really exists. And this volume makes you think of cheapness, regardless of the price tag. IKEA even has a name for this strategy: bulla bulla. 

This seems like an inspired business trick. Then again, maybe it only seems brilliant because we learned it has its own special name. IKEA is always trying to lure us in with its special names, which were only chosen because the founder was dyslexic. 

Speaking of strange Scandinavian customs... 

3 Half Tax for Christmas

Here’s a fact you might see floating around the web, without context: In Norway, everyone pays only half the usual tax in December. That way, everyone has a little extra money for Christmas. Oh, how wonderful life is in Norway! Clearly, we are all inferior to the Norwegians, who have it all figured out

But the country isn’t giving anyone a Christmas-themed tax break. They just shift the tax to all the other months, charging extra then. Norway, like many countries, deducts taxes from people’s salaries automatically, and rather than dividing the total tax they plan to take into 12 increments, they divide it into 11.5 increments, with December (or November) getting the half bit. 

Actually, they divide it into 10.5 increments, because they’ve got this whole other thing going on elsewhere in the year. One month, you pay no tax but also get no salary, instead getting money from a special “holiday pay” account you paid into all year. But either way, the Christmas system doesn’t save anyone anything in taxes. 

Shuffling taxes around in this way works as a mandatory savings scheme. Norway could instead take less from you earlier in the year, but if they did that, they figure you’d just spend the difference on drugs and would have nothing left come December. Some people aren’t fans of the system. Maybe you wouldn’t spend it on drugs, maybe you’d save it on your own, or maybe you’d invest it. Or maybe you want to spend it on drugs, and how is that anyone’s business but yours?

Other people love mandatory saving. In fact, some people even take the option of refusing the winter pseudo-tax break, paying the usual tax rate even in December. Their reasoning? Pay extra now, and they’ll get a bigger tax refund, when they file their tax return. Such people just really hate having money hanging around, we guess, or they don’t trust themselves not to spend it all on drugs. 

2 Any Kind of Targeted Discount

While we’re on the topic of Christmas, you know that when stores offer Christmas sales, that’s not their little Christmas gift to you, right? The goal behind the discount is to encourage you to buy, not to save you money, obviously. Similarly, when a store has a back-to-school sale, that’s not their way of supporting students, it’s their way of selling more. You know this.

Now, suppose instead some place offers a consistent discount, only for students. Say, an airline always gives you a fixed percentage off if you have an active .edu email address. Is that their way of being kind to students? Since we’ve walked you this far, we trust you’ll correctly answer, “No. This is their way of encouraging purchases from students, because their goal is making money.” And yet if this airline were to announce that they’re removing their student discount, many people would react as though the company just rescinded a gift. They got rid of the discount, because they’re greedy! people will conclude. 

When a company charges lower prices to customers who they suspect are less willing to pay full price — students, senior citizens, military veterans — this is a profit-maximizing strategy known as price discrimination. That’s the official name for it, even if that name sounds like it was coined by an activist protesting the practice as evil. By charging you, the student, less than full price, the company makes less than if you paid full price, sure. But they draw in more students, so they profit more than they would have otherwise. They also profit more than by reducing the price for everyone, because this tiered system lets them continue to charge more to those who can afford to pay it.

We’re trying to explain this as simply as possible to make it sound straightforward because otherwise, people tend to find this concept very counterintuitive. Taking money “from each according to their ability” to pay does not sound like the capitalist way at all. And yet this is very much a method for making the most money (assuming, of course, that even the discounted price gives the seller some profit). If stores could review your last tax return and bank statement and invent a new price just for you, they absolutely would, not because progressive pricing is egalitarian but because it’s profitable. 

People who see variable pricing forget there’s a profit motive. For example, some video game companies engage in price discrimination, by charging lower prices in (say) Brazil compared to the United States. Other video game companies don’t offer regional pricing, leaving Brazilian customers shocked at how much the game costs. “That’s how much they’re charging?!” one will say. “Screw these greedy publishers.” 

But that second publisher isn’t being greedy. Greedy would be charging a lower price, one they could actually make money off of. This publisher is incompetent.

1 ‘Pay Whatever You Want’

You walk into a hipster café and order a Nutella and banana sandwich. Strangely, this place posts no prices. “Just pay whatever you like,” says the chill lady behind the counter. Well, that sounds perfect, right? That’s one way to ensure they won’t overcharge you? Nope. This system ensures they will overcharge you. 

Let’s walk through your reasoning as you pick your own price. How much is one banana sandwich worth? Ten dollars? So, you pay that much. Fair’s fair. Only, when you think a banana sandwich is worth $10, you want to pay less than that. If a sandwich and a ten-dollar bill are worth exactly the same to you, you won’t bother exchanging one for the other. You only make an exchange when you value the sandwich more than its price (say, when the price is $9). 

The difference between the price and the higher value you place on the product is known as consumer surplus. Making you pick your own price is a clever way of depriving you of consumer surplus. It is, in fact, another form of price discrimination, except it’s an especially evil one because it leaves you no room to refuse. 

If the café, through market research or telepathy, successfully guesses you think a sandwich is worth $10, and they charge you that much, you can decline to buy it. (Knowing you value the sandwich at exactly $10, they’d be wiser to charge you $9). But if you set the price yourself? How can you possibly refuse to buy it out of dissatisfaction with the price? You’re the one who picked that price!

“Hold on,” you say, seeing the obvious flaw in this logic. “I don’t need to offer the full $10 at all. I could offer eight, or seven. I could offer two.” Yes, you could. You could also sit down at some fancy restaurant with a normal pricing system, order a full meal, then at the end say, “I’m not paying for this,” and walk out. They won’t pull a gun on you, and it’s not worth their time to call the cops. But you wouldn’t do that because you’re honest. And when Banana House asks you to choose your own price, your honesty will similarly keep you from paying a penny less than you think the sandwich is worth, even if the result is more than you want to pay. 

You might go your whole life without encountering one of these strange establishments that ask you to assign prices to goods. You will, however, encounter situations in which you must assign prices to services. We call this “tipping.” 

People have a lot to say against the system of tipping in restaurants, and restaurants are one of the less tricky tipping arenas. So long as you go into the situation knowing what’s expected (say, 20 percent), you can just mentally add that to every price while ordering and not make the bill a referendum on your server’s performance. Other forms of tipping are worse.

Say you go to a hotel, and a bellhop escorts you up to your room. He lingers, waiting for a tip. This is a “pay whatever you want” situation, and the amount you’re truly willing to pay is zero. If this were an optional service, for which you could pay in advance, there’s no price you’d pay for the privilege of having this guy follow you up to your room, not even five cents. You might have paid to just to keep him away.

But he did come to your room. And now, he expects you to place a value on his service. You have to take into account what you think his time is worth. You have to consider how his daily expenses mean he needs money. You have to factor in your own wealth and your generosity; if you do not tip well, you are a bad person. So, you tip him, and this is certain to cost you more than you would have paid had the hotel assigned its own price, which you would have turned down. 

One day, you will find yourself in a far-off country and will meet a local offering to be your guide. How much is he charging you, you ask. “As you like,” he says with a smile. Do not accept this. Force him to name his price. Because if you’re the one who names it, you’re guaranteed to get screwed. 

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