While scouring shops for the best price on a phone of a specific model, I came across a shop where the same was being sold at ₹8,500. All of a sudden, my sister called me saying that a phone of the same model was being sold for ₹300 cheaper at a different store ten minutes away. However, I ended up buying the phone from the first shop.
On a separate occasion, I was foraging for a new watch and found a piece that suited my liking worth ₹1,200. On sending a picture of the same to a friend of mine, I was informed that one of the same model was being sold at a shop located fifteen minutes away for ₹300 cheaper. I immediately left the original shop and bought the watch from the other store.
The behaviour presented in the examples above can be explained by one of the earliest findings in psychology and the field of psychophysics – the Weber-Fechner Law of Just Noticeable Differences (JND’s), and its application to consumer behaviour and perception. A Just Noticeable Difference is the smallest difference between the intensity of two stimuli that a person can detect. Simply put, it is the minimum change necessary to be noticed. The Weber-Fechner Law posits that the Just Noticeable Difference in a variable is proportional to the magnitude of that variable. In other words, the perceived change in stimuli is related to the initial stimuli.
A real-life example of this was seen in NPR’s Car Talk, a podcast hosted by the Magliozzi brothers. The two hosts would accept calls from people with questions about their cars. An episode of the same saw a person from New York call-in complaining about the fact that both the headlights of his car went out at the same time. As a result, the mechanic said that he would need two new bulbs. The caller was astounded that both the bulbs would go out at the same time, refusing to believe it to be a coincidence. Tom Magliozzi went on to explain this using the Weber-Fechner Law. Provided the fact that you live in a well-lit city, he suggested that going from two bulbs to one is not a noticeable difference. However, going from one bulb to zero is definitely noticeable and crosses the threshold that makes it a JND. Keeping in line with JND, he suggested that the two bulbs did not burn out at the same time. It was the caller who did not notice the burning out of the first bulb.
The theory of Just Noticeable Difference is equally applicable to the human perception of changes in goods, branding, marketing and pricing of goods. Its application in marketing was studied by Kramer. He studied companies considering decisions like an increase in price of a commodity, negative changes in product size, or changes in quality. He concluded that changes were made based on a particular threshold to limit its visibility to consumers, below which they will not notice or least notice the negative change. Conversely, positive changes, like promotions, decrease in prices/discounts or an increase in the quality of goods is set above the just noticeable threshold – making them more apparent to consumers so that they are able to consciously perceive the positive change in the product quality or price. This sets the base for our understanding of consumer perception and the manipulation of the same by companies. What is interesting to note and what was rather eloquently put by Richard Thaler – “they have convinced their customers that the entire shopping experience is an orgy of bargain hunting, and go out of their way to reinforce that image.”
To a large extent, the price of a commodity affects the behavioural changes in consumers. There are thresholds above or below which a consumer would not change their intention to purchase a commodity. Above a certain price threshold, the value of a product, as perceived by the consumer, decreases and below a certain threshold, the perceived quality of the product decreases. This relationship between price, quality, and value can be applied to the perception that a number of people have about the relatively low quality of goods ranging from clothes to footwear to electronics being sold by vendors on the streets (those of whom sell goods at a rate cheaper than the commercial one).
While the anecdotes mentioned earlier – my experience with purchasing the watch and phone – dealt with a difference in price, one could consider JND for a change in quality (like with the NPR Talk Show anecdote) or appearance of a product, as well. The image above depicts the change in packaging of the Budweiser bottle over the years. This change when looked at over the years may not be as noticeable from Packaging A to Packaging B. However, when one looks at Packaging A and then at Packaging H, the difference is noticed immediately.
This subtle change is made in order to make a brand either stand out more or appeal to a consumer more. DHFL did this, over the years, with a change in their logo – taking it from yellow to red – in order to catch the eye of the consumer. Changes like this can be explained through JND, as well.
While considering the aforementioned cases of the phone and watch, respectively, the ₹300 difference in the price of the former was below the JND threshold. However, in the case of the watch, the ₹300 difference caused the change in price to be large enough for me to notice it. This affected my behaviour and, therefore, was above the JND threshold. Economically, the difference in price in both cases was an absolute value of ₹300 and if I did not travel to avail of the lower price of one product, I should not have travelled for the change in price of the second product either. However, behaviourally, my decision was guided by the fact that a difference of ₹300 for a lower price seemed to be a great deal more valuable than that for a higher price – I was inadvertently sticking to the core premise of economic theory – people choose by optimizing.
Sources for further reading:
Misbehaving: The Making of Behavioural Economics – Richard Thaler