Lessons in SCAMS, Decision Making and The Integrity of Discounts

I have these nice looking studio-style speakers, about three feet tall, that sit in my house and collect dust. Haven’t used them for years and should probably just throw them out. But I haven’t. Why? I’ll get to that in a minute. First, let me tell you the story about these speakers.

I was 16 years old cruising around in my first car—a 1988 Daihatsu, which was a little three cylinder hatchback that got damn near 40 miles per gallon. Can’t recall exactly where I was headed that afternoon, but I remember pulling into a Conoco for some gas. After filling the tank (for about $15!) I was approached by two guys in a van who claimed to work for a home entertainment system retailer.

Their story was that there was an error on the invoice of their last delivery and they had an “extra” set of speakers that had been paid for, but if they went back to their warehouse with them the company would just take them to re-sell again. So they were willing to make a killer deal on what they claimed were $2,000 speakers.

One of the guys pulled out a speaker to show me. It seemed legitimate with official looking labeling and packaging. The outside of the box listed all the features that the speakers offered, which were just like all the others I had seen before in the stores.

He began spouting off a bunch of tech specs I didn’t really understand and ended his pitch by saying they really needed to get back to the warehouse, but he’d sell them for only $800. At this point, and in retrospect, I should have grilled him more about the speakers— their function and exactly what I would be paying for—rather than focusing on the discount. But the problem was my naivety in the matter.

They had the same list of supposed features and appeared like many other studio speakers I had seen, which led me to believe they were all the same. And to further justify it (in my head) was the discount. Why pay $2,000 at Best Buy when I could get the same thing right here for much less? Only thing was, I didn’t have $800.

“I don’t have that much money right now, but I can give you half that.” Which was about ¾ of my paycheck from working afternoon and weekend shifts between school at the merchandise warehouse of Coors Brewing Company.

To my surprise, he jumped on that offer; throwing the speakers—and himself— into my car while I drove to an ATM. Believe me, I was a little nervous about the situation. Was this for real? I began to think the speakers were stolen, but let’s say there actually was an error with invoicing—was it fair to sell them and me to buy them? Were they honestly trying to hook someone up with a great deal? One on hand it seemed to be true, but on the other it seemed shady as hell.

I really couldn’t quite tell, but it just so happened that I was in the market for some speakers as my band at the time had just started recording some of our music and the addition of some huge speakers to our makeshift recording studio would be SWEET! So, against my judgment, I went for it. We arrive at the ATM where I withdrew and handed over $400 of my hard earned money.

I got home and immediately set them up for a test. They worked; but at a disappointingly minimal level. By that I mean I could have gotten the same quality out of a Wal-Mart special. There was no deep bottom end. There were no sharp tones. And what were supposed to be little subwoofers delivering that extra bass were mere decorations, like those flowers that sat on your grandmothers table for 10 years. Those bastards!

I ran upstairs to research the speakers online and learned I had in fact been burned by a well-know and widespread scam deemed the “White Van Speaker Scam”. There were reports from hundreds of people, maybe even more getting burned by the same scheme and it is even documented on Wikipedia!

Dr. Robert Cialdini, in his book Influence: The psychology of Persuasion, I feel, breaks down why some people have fallen for this infamous scam:

“Very often in making a decision about someone or something, we don’t use all the relevant available information; we use, instead, only a single, highly representative piece of the total. And an isolated piece of information, even though it normally counsels us correctly, can lead us to clearly stupid mistakes—mistakes that, when exploited by clever others, leave us looking silly or worse.

[he continues] For instance, in deciding whether to say yes or no to a requester, it is clear that we frequently pay attention to but one piece of the relevant information in the situation. We are likely to use [these] lone clues when we don’t have the inclination, time, energy, or cognitive resources to undertake a complete analysis of the situation. Where we are rushed, stressed, uncertain, indifferent, distracted, or fatigued, we tend to focus on less of the information available to us. When making decisions under these circumstances, we often revert to the rather primitive but necessary single-piece-of-good-evidence approach. All this leads to a jarring insight: With the sophisticated mental apparatus we have used to build world eminence as a species, we have created an environment so complex, fast-paced, and information-laden that we must increasingly deal with it in the fashion of the animals we long ago transcended.

When those single features are truly reliable, there is nothing inherently wrong with the “shortcut” approach of narrowed attention and automatic response to a particular piece of information. The problem comes when something causes the normally trustworthy cues to counsel us poorly, to lead us to erroneous actions and wrongheaded decisions. [as we have seen] one such cause is the trickery of certain compliance practitioners who seek to profit from the rather mindless and mechanical nature of shortcut response. If, as seems true, the frequency of shortcut response is increasing with the pace and form of modern life, we can be sure that the frequency of this trickery is destined to increase as well.”

A bit alarming when you think about it, and perhaps that’s why I still have those damn speakers; to remind me that all things are not equal and just when you think you’ve scored a deal, it can come back to haunt you in the long run. When I look back, it really dumbfounds me how low those scammers were to target a teenager. Pathetic.

But I refuse to play the victim card. At the end of the day, it was my own damn fault and there is some good that came of it.

I was taught some valuable lessons in decision making, but even more so, integrity. I realized it’s not always easy to decipher integrity from incentives with people. Especially with salesmen. Of course, scammers and salesmen aren’t necessarily the same. But it got me thinking… should a price tag always be the critical factor at hand? Or in certain situations, would it be more wise to take into consideration the full account of what is being offered and why?

This brings to light…

The Integrity Of Discounting

In the name of increasing sales and selling a service, is it ethical or moral to have one client pay $3,000 more, for the same service, than another client? And does it really do any favors in the long run?

This discussion is likely to ruffle some feathers, as the sanctity of sales and discounts are what drive many customers’ buying decisions.

If you can save $100 on a TV during a Black Friday sale, or get two packs of socks for the price of one, why not right?
There is a time and place for discounts. For example, in a retail setting where these sales are well advertised and the dates for the promotional period are established, meaning everyone knows the game, the argument of ethics becomes less of a concern. But what about the situation that routinely takes place in different service industries, for example, real estate.

I have witnessed it too many times to count. The real estate agent, and, maybe he’s a good guy. But he meets with Client A on Monday, he sits down in their home, explains his services, then quotes to the homeowner a fee to sell their home. Maybe it’s 6%. Then, just hours later, he sits down with Client B, presents the same spiel, the same set of services, but this time quotes to the homeowner a fee of 5%.

I ask you, what’s wrong with this picture? What changed in the few hours between when he met with Client A vs. when he met with Client B? If both homes are, assuming, in the $300K range, does it seem right that Client A is asked to pay $3,000 more for the same set of services than Client B?

If I were Client B, I would be pissed. Especially given the fact that Client A, just hours before me was given a $3,000 discount that I did not receive, nor was I offered. Did I miss the advertised sale somewhere? Did I overlook the dates for the promotional period to save three thousand bucks?

With parents, it is universally known that if you favor one child over the other, you will be setting yourself up for disaster, and yet, in the business world, in industries like mine, real estate, I see it all the time. Agents giving preferential treatment, or discounts on service-fees to one client and not another, often times due to competition, because by discounting his services, he believes he’s more likely to win that client’s business.

Sorry, but I simply can’t get on board with that.

I read an article the other day on the business Tuft & Needle—a mattress company out of Arizona. The title of that article, “The hidden costs of discounting.”

Long story short, this was the position of the company’s founders. “Last week, our marketing team gathered for its weekly meeting. Among the topics of discussion were designs for new billboards, potential partnerships with radio hosts and plans outlining new initiatives beginning in 2016. What the team didn’t discuss; was what discounts or special prices we might offer on Cyber Monday.

At Tuft & Needle, we’ve decided against having a promotion on Cyber Monday. In fact, we don’t discount any day of the year. In the mattress industry there are sales almost every day of the week, especially around the holidays. “Lowest Prices of the Season Sale” or “Black Friday Door-busters,” you’ve seen them all… Most mattress retailers report an outsized amount of sales occurring during these promotional periods.

Before I explain why we’ve decided against it, let’s dive deep into what promotions and discounts really are.
How discounts work:

The idea behind a discount on the surface is rather simple. Something that previously cost $500 is now on sale for $400. The consumer has saved $100 over what they would have paid. Promotions exist to create a perception that customers are saving money.

Why do companies charge different prices to different customers? It’s based on the idea that the customer that paid $400 wouldn’t have purchased if they had to pay $500. This is all based on the theory that a customer who thinks they are getting a deal is more likely to buy.”

The founders continue, “Fairness: Tuft & Needle was started when our co-founders shared a similar, but awful experience. They were pressured into overpaying for a mattress they weren’t excited about. A lot of that pressure was due to the “over-whelming discounts” that were available.

From this experience, a decision was made to offer fair and transparent pricing. We decided that the best pricing strategy was actually rather simple: Every customer should pay the same price for the same set of our products.
When customers pay different prices for the same product, one group of people is subsidizing the discounts for another.

At T&N, if we were to offer discounts, it would be for the sole purpose of increasing sales. For the record, we’d love to increase sales. But adhering to the core values of our brand takes the highest priority.”

From reading those paragraphs, there were three convictions that resonated with me. Fairness. Transparency. And this statement, “The core values of our brand takes the highest priority.” If one doesn’t share these beliefs, how could they possibly have integrity?