I drove through McDonald’s this morning and ordered chicken mcnuggets. The price? Four for $0.99 or six for $2.99. In four packs, nuggets are 25 cents, but in six packs, they are 50 cents! Since I’m not as dumb as I used to be, and I provisioned my mcnuggets in packs of four. I force McDonald’s to incur more costs, and I enjoy a larger consumer surplus.
This experience reminded me of a practice I regularly employ on Amazon.com. When ordering something for, say, $20, I typically add items to my order to break the $25 barrier and get free shipping. That’s exactly what Amazon wants, yes? The problem is that I routinely add the same item to my cart to reach the minimum basket size. What item? Batteries????????. AAs, Cs, Ds… I don’t care, they all get used because I have small children (and I never run out, in spite of nearly endless toys beeping and buzzing).
This is a problem for Amazon, because batteries are extremely heavy to ship. By adding them to my basket, I get free shipping, but Amazon actually pays more in shipping costs. Batteries are an excellent change-maker for me, but a terrible one for Amazon. I am forcing Amazon to bear the entire cost of the shipping surplus and I am likely stealing most (or all, or more than all!) of the additional profit associated with the batteries.
In rural areas and foreign lands, the change-maker is often penny candy (Chiclets especially). If a transaction comes up near a currency threshold (a whole bill or coin), often the storekeeper will offer candy as change instead of currency. The consumer wins (they typically get more candy than the face value of the currency due) and the retailer wins as well (the candy costs less than the currency would). In this manner, the retailer and consumer split the surplus and everyone wins.
For all us etailers running incentives and upsells at the cart level, are we encouraging those sales which raise our actual margins, or are we simply giving more surplus to the consumer because we’re using blunt measures (e.g. basket size) to measure success?
Since I have small children, candy would be an effective change-maker for me at Amazon.
Cotton candy would, as you can already see, be the ultimate profit engine here.
