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st
Po
or
Column

The Persuasive
py
Power of
Co

Opportunity Costs
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by Shane Frederick
No
Do

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 Column
Frederick
The Persuasive Power
of opportunity Costs
W
hile shopping for my first ste- “[W]hile the price of freedom and security is
reo, I spent an hour debating
between a $1,000 Pioneer and
a $700 Sony. Perhaps fearing that my inde-
cision would cost him a sale, the salesman
intervened with the comment “Well, think
of it this way—would you rather have the Pi-
oneer, or the Sony and $300 worth of CDs?”
Wow. The Sony—and by a large margin.
Twenty new CDs were too great a sacrifice
for the slightly more attractive Pioneer. Al-
though I could subtract $700 from $1,000
and was capable—in principle—of recog- ucts should trumpet the opportunity costs *My editor suggested that I could write this
nizing that $300 could be used to buy $300
worth of CDs, I hadn’t considered that until
the salesman pointed it out.
Co
If one assumes, as an economics text- that leads people to choose the silver over
book might, that consumers routinely
calculate opportunity costs, this anecdote
should be revealing. All decisions involve
opportunity costs, but the way consumers
reckon them has received little attention
from decision theorists and even less from
marketers. Promotional messages often
highlight the advantages of one product “the loss of nine Twinkies per American per
t
over another (A is 50% faster than B; X is
$300 cheaper than Y), but spelling out the
No
implications of those differences may be
more persuasive: Price differences can look
large or small, depending on what else one
imagines purchasing with that money.
Though opportunity costs seem under- as something unattractive or unimportant.
used as a rhetorical tool of marketers, they An ad by De Beers did this brilliantly. It de-
were famously invoked by Eisenhower in
his 1953 “Chance for Peace” speech: “The
cost of one modern heavy bomber is this: a
Do
modern brick school in more than 30 cit-
ies.…We pay for a single fighter with a
half million bushels of wheat. We pay
for a single destroyer with new homes
that could have housed more than 8,000
people.” By contrast, references to op-
portunity costs were notably absent in
a speech George W. Bush delivered 50
years later in the run-up to the Iraq war:
2 Harvard
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st
Po
high, it is never too high. Whatever it costs
to defend our country, we will pay.”
or
Price differences can look
large or small, depending
on what else one imagines
purchasing with that money.
py
Generally, firms selling cheaper prod-
of trading up, while those selling expensive column in the time it would take me to watch a
ones should keep quiet. But the concept
must be wielded with care. The same logic
the gold could lead them to choose the
bronze over the silver.
Moreover, the lost opportunities one
highlights should be something the deci- thank Zoë Chance for many helpful comments.
sion maker values. An ostensibly antiwar
website described the cost of the war in
Iraq (then estimated at $300 billion) as
day for a year.” Come again? The peaceniks
had unintentionally persuaded me that
the war might be a bargain. This comically
ineffective comparison suggests a strategy
for those offering expensive products or
policies: Cast the opportunities given up
picted two large diamond earrings with the
2011
CoPyRIgHT
copyright. Permissions@hbsp.harvard.edu or 617.783.7860
Shane Frederick (shane.frederick@yale.edu)
is an associate professor of marketing at Yale’s
School of Management.
tagline “Redo the kitchen next year.” Clever.
It implied that the cost of the diamonds was
merely a slight delay in a renovation. In fact,
if a consumer spent the money reserved for
the kitchen on the diamonds, it might take
him or her much more than a year to save
that amount again.
A widely accepted precept in research
on decision making is people’s passive ac-
ceptance of the “frame,” or characteriza-
tion of the problem, they’re provided. This
confers power on those who offer a frame.
Decisions about whether some expendi-
ture is “worth it” hinge on what the pur-
chase is seen as displacing. Take the extra
time to define that, and you can change
the way your customers view your value
proposition.*
sitcom. In fact, by the time I completed it (amid
distracting giggles coming from my daughter as
she played downstairs), I realized that I could
have watched half a dozen sitcoms.
this column is based on research presented in
Frederick, S., novemsky, n., Wang, J., Dhar, r.,
& nowlis, S. 2009. opportunity Cost neglect.
Journal of Consumer Research. 36. 553-561. I
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