McDonalds initially tried selling their new Mighty Wings (KFC quality) at Buffalo Wild Wing prices $1+ a wing. This did not reflect a good value for the McDonald's consumer because for $1 they could also get anything on the dollar menu instead of a single chicken wing.
The result: they got stuck with over 10M lbs of unsold chicken wings, so they started this new promotion that utilized a Dummy Variable (the chicken wings are perishable so they need to get rid of their stock before it goes bad).
Dummy Variable: Comparing the 3 wings for $2.99 and 5 wings for $3, the 5 wings are clearly superior. With just the 3 and 5 wing sets, 99% of people would get the 5 wing set and be very happy with their decision, they paid an extra penny and got 2 more wings, that creates good value for the consumer.
However, if you are smart like the rest of us at Cornell, you might have also noticed that you can buy 2 sets of 5 wings for $6, which is much cheaper than buying 10 wings for $8.99. So instead of initially getting just 5 wings you are tempted to get 10 or 15 wings because the second dummy variable gives you the perception you are getting greater value than just getting the set of 5! This pricing structure creates massive value for McDonald's consumers and also drives the sale of their Mighty Wings which they need to get rid of.
However, if you are smart like the rest of us at Cornell, you might have also noticed that you can buy 2 sets of 5 wings for $6, which is much cheaper than buying 10 wings for $8.99. So instead of initially getting just 5 wings you are tempted to get 10 or 15 wings because the second dummy variable gives you the perception you are getting greater value than just getting the set of 5! This pricing structure creates massive value for McDonald's consumers and also drives the sale of their Mighty Wings which they need to get rid of.
This is a great pricing example. Unless you pay close attention, you may not pick up on the cost difference between the 5 to 10 wings. Has anyone else seen examples of pricing advertising like this?
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