Fare Well with Fairness Intuition

Veteran retailer Kelly Ricks spins the fable of visiting a San Francisco hat shop. The walls are festooned with hundreds of hats, each carrying a price tag, and the prices range widely. “How do you decide what price to charge for a hat?” Kelly asks the shopkeeper. “Come with me. I’ll show you,” the shopkeeper replies as she retrieves a hat which had arrived just that day. The two walk into a back room where the shopkeeper steps in front of an oval mirror and places the hat on her head.
     Looking straight into the mirror, the woman says, “$10.99, $12.99, $14.99,” and continues, pausing briefly between each price announcement. “…$22.99, $24.99.” At that point, the retailer sharply breaks her direct gaze from the mirror, shakes her head, and writes $22.99 on a price tag she attaches to the hat. “You see,” she explains, “when I get to the price where I can no longer look myself in the eye, I drop back to the last price I’d said, and that’s what I charge.”
     This shopkeeper was pricing with an intuitive sense of fairness. What would be fair for the shopper as well as for her business? Many retail pricing decisions are made intuitively. That’s true for the shopper as well as for the shopkeeper and true when the price is not money, but rather time or effort. Fairness in shopping is important to consumers. When waiting to pay for their items, people become agitated if somebody butts in line or if another queue moves much faster than the one they’re standing in.
     What about how much people pay for the item? Researchers at UCLA and University of Chicago considered situations in which there is a limited supply and payment can occur in ways other than money. One study concerned a locally celebrated restaurant planning a special gourmet seven-course meal. How should the restaurant decide who gets a table?
     The research-based answer was that rewarding those who exert the most effort will intuitively seem most fair. Using a raffle in which people wait in line to get a ticket is better than auctioning off reservations to those willing to pay the most or inviting those customers who have eaten most frequently at the restaurant in the prior year.
     Because our intuition operates subconsciously, it often outweighs logical reasoning. Fare well in retailing by respecting intuitive feelings about fairness.

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