Mini Episode 8 - Why is there a $140 option at my local car wash?

Dustin in Fairfield wants to know why people splash out more than $100 for suds and water.

Dan: 00:17 Welcome to Bad Decisions, Mini Episode eight. I'm your host, Dan Monheit. And today's question is from Dustin in Fairfield.

Dustin: 00:25 Hi, Dan. Dustin here from Fairfield. Love the show. Keep the episodes coming. I've got one for you. So I went to get my car washed at my local the other week, and I saw an option for a deluxe, $140 wash. And I just thought, "Who actually wants that? Why is it even an option?" Can you get your thoughts?

Dan: 00:44 First of all, great question. And there absolutely is a customer base for the $140 car wash. Let's just be very clear here. If you are a professional hitman, if you are a fishmonger, if you clean septic tanks for a living, this is the wash that is going to let you be your best self, get your shine on. And I get it.

Dan: 01:02 But surely, it's a reasonable question. Could there really be enough other people out there who would consider $140 to be a reasonable price to pay to have their car washed, to even justify having it on the sign?

Dan: 01:16 And I guess it's the same kind of question for those $6,000 barbecues or the $950 Cab Sauv that you see at the top of a wine list. And basically the whole category of first-class flying. Who on earth is buying this crap? Because sure as hell nobody I know.

Dan: 01:30 And the reality is maybe nobody is buying this stuff. And actually, it doesn't even matter because of a really interesting heuristic known as anchoring.

Dan: 01:40 Anchoring refers to our tendency to depend far too heavily on the first piece of information we receive and subsequently weigh all other pieces of information against the first one.

Dan: 01:52 So the first research done into anchoring was done in 1974, by some very familiar names by now, Kahneman and Tversky. And what these guys wanted to do was really determine how powerful and how pervasive this idea of anchoring was.

Dan: 02:05 In fact, they wanted to stretch it so far that they decided to see if they could take an anchor from one category and stretch it into another completely unrelated one. So hang with me here because this all sounds a bit wild. It's going to come right back to car washing in a minute, stay with me.

Dan: 02:19 So what these guys did is they set up a roulette wheel, which was rigged to only land on number 10 and number 65. Now, if I had managed to build a roulette wheel that did that, I would probably use it for better things than scientific research. But anyway, these are very admirable guys, what we call mentors.

Dan: 02:36 So they decided to use this wonderful roulette wheel to help us all learn a little bit more about how pricing works. So they had this wheel, it stops on 10, it stops at 65.

Dan: 02:45 They got a bunch of subjects to come through and have a spin on the wheel. They would then see which number it landed on, either 10 or 65. And they would then be asked to guess the percentage of African countries in the United Nations, which it's pretty safe to assume most people would not know that off the top of their head.

Dan: 03:05 What the researchers found was that when the roulette wheel landed on 10, the average guess people made was 25%. When the roulette wheel landed on 65, the average guess was 45%. Even though the roulette wheel and the number of African countries in the United Nations have nothing to do with each other, what is very, very clear is that the result of one anchored their answer for the other.

Dan: 03:27 It's like when our brain receives a question it doesn't know the answer to, it digs around. It says, "Do we have any numbers here about African countries in the UN?" "No." "Do we have any numbers at all? Has anybody seen a number recently?" And some other part of our brand says, "Yes, I just saw the number 10." And it's like, "Well, 10 sounds a bit low. Let's go with 25."

Dan: 03:45 You can see how this happens. Now, we are especially fallible to anchoring, like most biases, when we're making decisions that are infrequent, that are under pressure, or that are in categories where we really don't have very much knowledge. And car washing basically ticks all three of those boxes.

Dan: 04:03 We don't do it all that often. You are under pressure because you have like four seconds from when the attendant comes over and asks, "What do you want?" And there's not a whole lot of info about what the difference between all of these washes are.

Dan: 04:13 So in these four seconds that we get to decide what we want, we look up, we see $140. We think, "That's crazy. I would not spend $140 washing my car. But hey, that silver option for $60, it looks pretty reasonable." Doesn't it?

Dan: 04:27 And we've got to admit that if $60 was the top price point, we would be far less likely to pick it because we've been anchored at the platinum at $140.

Dan: 04:35 So what we see here is the $140 car wash is not really designed to sell $140 car washes. It is designed to make us all feel much better about buying $60 car washes, much like the $6,000 barbecues and the $950 bottles of wine.

Dan: 04:50 For brands, the key takeaway here is to be really cognizant of the anchors that exist in the categories that we operate in. We can then price relative to the anchors that already exist or think about how we can be brave, step up, and create new categories and anchors of our own much like Red Bull, Grill’d and Cirque du Soleil of I have done.

Dan: 05:08 And the cool thing is if you do manage to go out and create something new, you get to aim high, knowing that the first price that you set is what everything else is going to be built around.

Dan: 05:17 So there you have it, Dustin. I hope I not only answered your question about the $140 car washes but also I hope that Fairfield continues to treat you well.

Dan: 05:25 If you've got any other questions about the weird and wonderful observations you've made about human behavior that you'd like me to unpick or demystify, shoot them through to askdan@hardhat.com.au or you can get me all over the internet at Dan Monheit. I'll catch you next time. Peace out.