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Dry July, an Australian fundraising campaign to support people affected by cancer, is almost here again. The premise is that abstaining from booze and hangovers for a month frees up money to donate.
But with prices in the booming alcohol-free drinks category often rivalling those of regular tipples, participants this year might find they have less spare cash than they anticipate.
Alcohol-free drinks are often close in price to the alcoholic equivalents, despite the companies paying much less tax on them.Credit: Wolter Peeters
Traditional alcohol producers, who have expanded into the US$11 billion non-alcoholic drinks industry, have helped make the high prices seem acceptable to consumers by using a marketing tactic called price-anchoring.
When we encounter a new product, we latch onto whatever seems relevant in the immediate environment to estimate its value. Sellers often exploit this by staging information at purchase points. The classic is a price tag with $99 struck out and $79 written in. Whether it’s accurate or not, the $99 reference point shapes our perception of value and price.
This is just one example of the broader anchoring cognitive bias described by psychologists Amos Tversky and Daniel Kahneman.
The essence of anchoring is that we tend to rely too heavily on an initial piece of information (the “anchor”) when making decisions. This can lead to skewed judgments and poor decisions in everything from deciding whether to have surgery to buying real estate.
Anchoring has been used to reinvent and elevate the virgin drinks category by exploiting the fact that we’re used to paying high prices for alcohol in bottles, cans or glasses of a certain size, shape and sophistication. When alcohol-free versions with similar labels appear beside them on the shelf, website or menu, we tacitly accept they should command roughly the same prices.
The effect is strongest in bottle shops and bars, where the glitz of alcohol marketing, social pressure and the sheer number of expensive items overwhelms our rational thinking. But it also works on websites, where national alcohol retailers have special zero-alcohol categories.
It doesn’t take much browsing to confirm that prices between the two categories are similar. Currently, on one of the big retailers’ websites, a case of 330ml bottles of Heineken Lager (5 per cent alcohol) is $55; Heineken 3 (3.3 per cent alcohol) is $50; and Heineken Zero (less than 0.5 per cent alcohol) is $49. At another outlet, the traditional Gordon’s London Dry Gin is $45, while the non-alcoholic version is $38.
Brands encourage you to think their investment in developing “healthier options” using “high-quality ingredients” means high prices are fair enough, and that a non-alcoholic drink made with arcane “botanicals” and “adaptogens” in a nice bottle is worth a splurge.
But look at what makes up the price. All processed drinks incur GST. And drinks that contain alcohol are hit with a heavy additional excise. The exact percentage is difficult to calculate, but the alcohol-related tax on a bottle of full-strength beer can exceed 30 per cent.
Industry players don’t pay that tax on non-alcoholic drinks. So, in a sense, they are pocketing a hefty bonus that well-anchored customers forget is not being passed onto the government. Ouch.
Seemingly at odds with price anchoring is the appearance of non-alcoholic versions of some famous brands in supermarkets. An incentive for names like Heineken, Coopers and Gordon’s to be in supermarkets is visibility in a family-friendly environment. Their brand becomes recognisable to customers who are underage now, but will soon be ready to buy alcohol for their 18th birthday bash.
It’s a risky strategy, however, and can attract adverse publicity. In fact, to protect their reputations, several supermarket chains in New Zealand require customers to show ID when purchasing non-alcoholic lookalike drinks.
The Australian government’s Behavioural Economics Team has an informative blog post on minimising the impact of price anchors. But research suggests even experts are susceptible.
Besides awareness, you can reduce the effect of price anchors by curating your exposure to price information. If you want non-alcoholic drinks, visit the supermarket before the bottle shop. The range may not be as big, the drinks may not be any cheaper, and you may need to go to the bottle shop anyway. But the experience will put the untaxed non-alcoholic products in a fairer context – the soft drink aisle. Comparing prices under those sober lights, you might suddenly feel like picking up a bottle of ginger ale instead.
In bars and clubs, you can try to flip the script. Ask for your soda water in a fancy glass with lots of ice and slices of lemon or lime. This anchors what’s in your hand to high-priced cocktails.
Of course, if you embrace the life of a true ascetic, H₂O is a zero-dollar option that always suffices. In Dry July, you might even join the hype and call it non-alcoholic vodka.
Cameron Shackell is a Visiting Fellow at Queensland University of Technology.
This article is republished from The Conversation under a Creative Commons license. Read the original article.
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