Gelato sells the ice creams ranging from Rs. 40 to Rs. 70 for a small cup. They usually try to sell you the bigger ‘double scoop’ Rs. 100 cup, which I simply deny. But yesterday, when I went to have an ice-cream at their store, they were selling the Flavor of the Month ‘Choco Cashew’ for Rs. 9 and cone for Rs. 15. I was shocked, and got to work solving this economics problem.
Why this offer seemed silly:
- Why would you sell an ice-cream for Rs. 9 if all ice creams you sell start at Rs. 50?
- Even if this was meant to get more customers, it would fail because the offer was only for a day, so it would be no use telling about the offer to a friend.
- If the goal was to attract new customers, it was silly because these nine-rupee paying customers would never pay Rs. 70 for an ice-cream.
- If they had to promote the flavor, they could price it at Rs. 25. A good offer price. Why Rs. 9!
- Maybe they were selling a low-quality ice-cream for promotional purpose. This would hurt their image.
Why it’s an awesome offer:
But later I realized the point of this offer. It is to get you to buy that particular flavor no matter what. Sitting there in front of the store, anybody would feel tempted to buy that particular flavor. Even when I, a regular customer, went up to the counter, I was tempted to change my decision and go for that flavor. It is for people to try that new flavor. Now the benefit of this is that because they sell awesome ice creams you are most likely to like that new flavor. Also because it is a new flavor, you wouldn’t hesitate suggesting it to all your friends: “Hey, Gelato has come up with an awesome new flavor, Choco Cashew. I tried it yesterday. You should definitely try it!” But, because of the absurdly low proice, you would never mention that you tried it because of the price.
And there, the company has sold five ice creams at Rs. 70 each, just by giving one of them literally for free. Win! Anyways, I had my regular ‘Fine Madagascar Chocolate’ flavor. With the eye of an economist, I am not very comfortable with offers.
Originally published at paramaggarwal.com.