TapRun Consulting

The Pigeon Drop: Another Pricing Con

by Adam Juda on Monday, June 1, 2015

I recently wrote about a pricing scam that could be performed quite easily. As an honest businessman, I would never conduct such unethical acts. Nevertheless, my interest in pricing scams continues to grow. Here's a particularly interesting one called "the pigeon drop."

The strategy is quite simple. It involves playing folks' greed against them.

First, the scammer selects an item of uncertain worth. Variations in the nature of the item range the gamut and might include musical instruments, jewelry, wallets or even glass eyes. The key to the selection of the item is that it should be chosen such that the mark ("the pigeon") can't easily figure out its value. The uncertainty in the item's worth is often due to unfamiliarity or (rarely) sentimentality on the part of its owner.

Next, the scammer informs the mark that he's missing the item in question and would pay handsomely for its safe return. The named reward is, by necessity, oversized in order to peak the interest of the mark. Citing an emergency, the scammer leaves only after making sure that his contact information is well known.

After a suitable amount of time, the scammer's co-conspirator will enter the premises and proudly announce that he has found the item in question.

The mark (believing that the person who has "found" the item knows nothing of the reward) will then proceed to bargain for the good. As long as the mark is able to purchase the item for less than the reward, he could be pushed into paying an absurd price. After all, the true value of the item does not (in his mind) relate to any inherent quality of the good, but to the fact that its owner is willing to pay for the item's safe return.

Once the deal is made and cash has traded hands, the scammer and his associate split the proceeds of the sale.

The brilliance of this scheme is obvious. By misdirecting the mark into thinking about the price that the future buyer will pay rather than the inherent value of the object, the scammer is able to disarm many of the mark's internal defenses.

There's just one problem with this scam. It works really, really well. In fact, one could argue that much of the stock market works exactly the same way. Most companies pay zero dividends to their shareholders and keep their hard assets to a minimum. Additionally, the value of most companies (when computed as earnings per share) are near all-time highs. As the actual price of each share continues to climb, one would think that investors would become more cautious, but actually the reverse is true. Their greed begins to feed on itself and current buyers acquire stock for the sole reason that they believe that someone out there will spend even more for the shares that he now holds. Far be it from me to suggest where this might lead; let's just say it might not be pretty.

Pricing is important. If you need help pricing your goods or services, you'll certainly want to contact me. If you're in the software field, you'll certainly want to read my book on how to price software.