The Beach Beer Problem

How Retail Stores Can Be Used in Advertising

Prepared by J. Scott Armstrong (details on him at jscottarmstrong.com). Please inform Scott about errors and also make suggestions (armstrong@wharton.upenn.edu) Scott has taken these slides from adprin.com, a site that he founded. That site contains interactive versions of these slides, along with linked references, videos, and webcasts, all in PPT and PPTX format that you can download.

Adapted from AdPrin.com 2

The Beach Beer problemImagine you are lying on the beach on a hot day and would enjoy a nice cold bottle of your favorite brand of beer. A friend offers to bring back a beer from the only nearby place where beer is sold – stated for half of the subjects as a fancy resort hotel and for the other half as a small, run-down grocery store. He says that the beer might be expensive and asks how much you are willing to pay for the beer. He will only buy the beer if it costs as much or less than the price you state. You trust your friend, and there is no possibility of bargaining with the bartender or the storeowner.

What price would you tell him if the beer was from the fancy resort? _____ What price would you tell him if it was from the run-down grocery store? _____

Adapted from AdPrin.com 3

In your advertising, feature a sales channel when it is impressive (Principle 1.5.2).

Subjects were willing to pay 73% more at the fancy resort to be fair to the seller (Thaler 1985)

Adapted from AdPrin.com

Based on this exercise, write a small application step for yourself, and set a deadline, preferably within one week. If you are working with someone else, share your application plan and the results of your application.

For example, consider improving the appearance of your retail outlet, or of your web site.