Shrouding the truth

Cheers, June, 2005 by Charles Forman

A couple of news items caught my attention this morning. The first was the hoopla over "Revenge of the Sith," the last piece of George Lucas's "Star Wars" saga. Included in the barrage of verbiage was the factoid that after 28 years and six episodes no science fiction movie has outdrawn the original "Star Wars." The opener grossed $461 million. What's more, every successive movie in the series is also on the top 10 list. What's that all about? Is it great computer animation? Not according to the reports. It's about the emotionally primal battle between good and evil. Silly space opera or not, "Star Wars" runs on strong legs.

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The second item was a business section piece, drawing on the work of economists Xavier Gabaix and David I. Laibson. According to the story, the pair have given the name shrouding to the practice of clouding the true price of a product. Take automobile selling. Car makers (at least traditionally) promoted a no-frills base price that was thousands below the price most buyers actually paid. Two examples in the story come from the hospitality industry. One is the tale of the merry waiter. He kept the glasses of San Pellegrino so full that the final check made the hostess scan the bill for the next table's first growth Bordeaux. She was suspicious the ultra-expensive wine had been erroneously shifted to her party's tab. What relief she must have felt when she realized it was just water!

Then the article considered a hotel bill. The room rate was reasonable. Who was thinking ahead to parking fees that sound like someone's apartment rent and breakfast tabs that would feed four for a week?

The most beguiling aspect of the report was its two-part thesis. One, shrouding is not good or bad but a phenomenon that represents an opportunity for savvy consumers no less than a costly trap for unwary or naive ones. (Buyer beware, indeed!) Two, shrouding is not voluntary on the part of businesses but something that companies have little choice but to engage in. And when customers catch on, it's time for new tricks from the same bag.

Fifteen years ago I wrote a training manual for a spirits company. I packed it with shrouding. For example, I wrote, you say, "I'll have a Strawberry Margarita." I say "Can I make that Cuervo Gold?" but don't let on that there's an added tariff. Luckily for both of us, much of the business these days is dominated by a relatively virtuous and un-shrouded concept--the premium well.

What's our conclusion? Despite appearances, we're not taking sides just yet. We're in business, too. But did you ever wonder why they call economics "the dismal science?" Or why "Star Wars?" was/is so popular? If you still do, please read this column from the top.

Charles Forman, Vice President, Group Publisher