Popcorn Economics & Negotiation

Does this scene sound familiar:

“Would you like to get the large for just two dollars more? It’s the BEST VALUE.” 

“Ah, I see it is. I’ll take the large, my good man.”

popcorn-bags[1]

The concept that paying $8.00 for 50 ounces of buttered popcorn could be called the “Best Value” is the funniest thing in the Cineplex since Eddie Murphy was at his peak. Yet people buy these tubs every day with straight faces. 

Why?

Because of effective anchoring by the seller.

 

Anchoring & Negotiation

In a recent article I called anchoring the most widely-used and effective negotiation tactic. You probably won’t haggle with the 16-year old at the concession stand, but every decision to buy or not buy is a form of negotiation. Internally, we have to decide how we value something, what our options are, and whether to buy or to walk. 

Whether you call it price anchoring, marketing, positioning or something else, the seller is setting an anchor value on the product.

In the case of the popcorn, we have options for different sizes at different prices. This provides the anchor. If you do the math or even a quick eyeball check, you can deduce that the large is the lowest unit cost – the lowest price per ounce. That is an objective fact. But is it the best value?

 

Defining Value

A buyer’s Value is the difference between the Price they pay and the Benefit they receive. Math-wise, Benefit – Price = Value, or:

 

Benefit

-Price

Value

 

The price is usually straightforward, and in our example it’s $8.00.

Now, to the Benefit. This can be tricky, because a buyer’s Benefit is not absolute – it’s Personal and Perceived.

 

The Benefit is PERCEIVED

Perceived relates to options. The more options you have and develop, the better you can assess the perceived benefit.

In this case we could have a healthy (or not-so-healthy?) debate about the Perceived Benefit. If we compare movie-theater popcorn to making popcorn at home, it would be outrageously expensive. On the other hand, if we compare the popcorn to the price of nachos or a hot dog — or to popcorn prices at the movie theater across town — it may see more reasonable.

 

The Benefit is PERSONAL

The benefit is also Personal – and this is often the harder part to figure out.

What is the benefit to ME? What do I value? One path to the answer is to assume the purchase, and list the outcomes and impacts, both good and bad. In the case of the large tub of popcorn, it may look like this:

 

GOOD THINGS

  • The popcorn smells good and will taste good
  • I love to get the lowest cost
  • We’ll have plenty to share

 

NOT-SO-GOOD THINGS

  • If I have more, I’ll eat more
  • If I eat too much I’ll feel sick
  • I’ll have to work out more
  • I’ll feel guilty if I throw away

If you made a second column and a comparable list for the MEDIUM box of popcorn, we’d probably find most of the good things and fewer of the bad things with the medium box of popcorn.

Just like that, we’ve developed what the world has been desperately awaiting – a movie snack cost-benefit model! (App, anyone?) 

In fact… if they charged MORE for the medium tub, it still might be the best value for me!

 

Re-writing the Negotiation

Benefit is personal. No one can tell you what your benefit is, and no one can present value. So let’s look at a different version of the opening scene: 

“Would you like to get the large? It’s the BEST VALUE.”

“Young man, how dare you presume my Value, when you don’t even know my Benefit. That is Perceived and Personal. Nothing but Twizzlers for me, thank you very much!”

OK, perhaps that’s an econ nerd fantasy, but you get the idea.

 

More than Popcorn

For our popcorn purchase, we followed two steps to determine our own anchor rather than rely on the seller’s assertion of what the big tub was worth: 

  1. We compared it to other options
  2. We defined what its benefit was

These are the two strategic skills of negotiation and buying: knowing your benefit and developing your options. They are also the best defense against the most widely-used negotiation technique – anchoring.

The extent to which you capture value will relate directly to how you apply these skills: whether you are acquiring a company, hiring a marketing firm, buying a lawnmower or buying a movie snack.

Of course, some of those purchases have greater impact than others, but the process of applying the skills is virtually the same, no matter the dollar value. 

So why not practice on the popcorn?

 

Building Your Skills 

If you want more practice consider signing up for the self-study video course Negotiate Value. It is offered FREE right now because I am asking initial students to help me promote the course and provide feedback on what is great and what could be better. Here are links to the course so you can see if it’s right for you:

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Course Lesson Plan

 

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