Price Vigilantes

The Tipping Point is a very popular book written by psychologist Malcolm Gladwell which discusses the phenomenon of how ideas, products and behaviours can “tip” in explosive ways. Some examples he cites in his book are: the seemingly instant drop in crime in New York, the resurgence of Hushpuppy footwear, and how the book Divine Secrets of the Ya-Ya Sisterhood went from selling 15,000 hardcover copies but then slowly gained momentum until it “tipped” a year later into selling 2,500,000 copies.

There are many very interesting concepts discussed in the book such as the Law of the Few, the Power of Context and the Stickiness Factor which Gladwell posits are necessary for a behaviour or product to “tip”. I found the concepts and message behind The Tipping Point to be incredibly eye-opening and thought provoking. If you are looking for reading material, click here for more information on The Tipping Point: How Little Things Can Make a Big Difference.

In any case, the reason for this post was to regurgitate a concept Gladwell in turn has borrowed from economists which is the concept of ‘price vigilantes’ and later, ‘market mavens’ (mavens will be discussed tomorrow).

Price Vigilantes

Grocery stores normally have many items that go on sale and are placed in plain view – naturally the sales volumes of these items increase when they are on sale and offered at a discounted price. However, Gladwell cites research in which items which are erroneously marked as being on sale even though no price discount is applied will have similarly increased sales volumes. In other words, the fact that signs indicating that a product is on sale is the reason for the increased sales, not the actual price discount.

A price vigilante is one of the few people who would notice this and complain to the manager or someone else within the grocery store organization. While price vigilantes represent such a small percentage of the consumer public, if it were not for the price vigilante, more grocery stores (and by extension other retailers) would have false sales which would drive you to buy more even though you would not be saving any money.

Preet Banerjee
Preet Banerjee
...is an independent consultant to the financial services industry and a personal finance commentator. You can learn more about Preet at his personal website and you can click here to follow him on Twitter.
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Showing 3 comments
  • correctorXXY

    he’s no psychologist…

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