" 70% Discount Sale! "
" Best Bargain Buy! "
" Buy 2, FREE 1! "
This are just some of the
strategies used to attract customers to shop at their outlets.
What so bad about that since we
(the shoppers) will be getting items at a discounted price?
Well, it isn't as simple as
that but "they" want it to look just that simple and make us feel
good when we shop and get the best bargains. There is a lot of science going on
behind giving out a discounted sale to customers.
Generally, we (the shoppers)
feel good when we manage to snag a good buy or deal such as buying something
expensive for less or getting some more by paying less. This is what the large
companies cash in on, by manipulating the shoppers mind.
So I found a great article by Derek Thompson of The Atlantic that writes about a number of ways consumer gets a
quick one pulled over their eyes making them think they got a good deal, when
in the end, the consumer ends up being the loser again.
A simple example that he
describes is about 2 offers:
- A $1 cup of 300ml Coffee
with 33% more (making it 400ml), or
- A $1 cup of 300ml Coffee
with 33% discount (making it $0.67)
The discounts / offer above
seems similar, 33% more or 33% cheaper. But that is not the full picture. With
a simple breakdown, at $1 for 300ml ($0.33 per 100ml),
- The first deal yields
400ml for $1 ($0.25 per 100ml)
- While the second deal
yields 300ml for only $1 ($0.22 per 100ml)
This trick basically plays to
trick buyers as buyers generally feel better when they get something more when
paying the same price instead of paying less for the same.
With the above in mind, notice
how discounts, bargains and sale seem to love giving more for the same price
rather then giving the same amount for less? Evil businessmen...
Anyway, it is a very
interesting article to read up on since it is sale time all over the country
and would hurt to equip yourself with some of the tricks that "they" employ
to make away with our hard earned cash. Below is the original article courtesy
of The
Atlantic.
Here are 10 more ways consumers
are bad at math, with an assist from historian and author William Poundstone.
(2) We're heavily influenced
by the first number.
You walk into a high-end store, let's say it's Hermès, and you see a $7,000
bag. "Haha, that's so stupid!" you tell your friend. "Seven
grand for a bag!" Then you spot an awesome watch for $367. Compared to a
Timex, that's wildly over-expensive. But compared to the $7,000 price tag you
just put to memory, it's a steal. In this way, stores can massage or
"anchor" your expectations for spending.
(3) We're terrified of
extremes.
We don't like feeling cheap,
and we don't like feeling duped. Since we're not sure what things are worth, we
shy away from prices that appear too high or too low. Stores can employ our
bias for moderation against us. Here's a great story:
People were offered 2 kinds of
beer: premium beer for $2.50 and bargain beer for $1.80. Around 80% chose the
more expensive beer. Now a third beer was introduced, a super bargain beer for
$1.60 in addition to the previous two. Now 80% bought the $1.80 beer and the
rest $2.50 beer. Nobody bought the cheapest option.
Third time around, they removed
the $1.60 beer and replaced with a super premium $3.40 beer. Most people chose
the $2.50 beer, a small number $1.80 beer and around 10% opted for the most
expensive $3.40 beer.
In short: We are all
Goldilocks.
(4) We're in love with stories.
In his book Priceless, William Poundstone explains what
happened when Williams-Sonoma added a $429 breadmaker next to their $279 model:
Sales of the cheaper model doubled even though practically nobody bought the
$429 machine. Lesson: If you can't sell a product, try putting something nearly
identical, but twice as expensive, next to it. It'll make the first product
look like a gotta-have-it bargain. One explanation for why this tactic works is
that people like stories or justifications. Since it's terribly hard to know
the true value of things, we need narratives to explain our decisions to
ourselves. Price differences give us a story and a motive: The $279 breadmaker was, like, 40 percent cheaper than
the other model -- we got a great deal! Good story.
(5) We do what we're told.
Behavioral economists love
experimenting in schools, where they've found that shining a light on fruit and
placing a salad bar in the way of the candy makes kids eat more fruit and
salad. But adults are equally susceptible to these simple games. Savvy
restaurants, for example, design their menus to draw our eyes to the most
profitable items by things as simple as pictures and boxes. Good rule of thumb:
If you see a course on the menu that's highlighted, boxed, illustrated, or
paired with a really expensive item, it's probably a high-margin product that
the restaurant hopes you'll see and consider.
(6) We let our emotions get
the best of us.
In a brilliant experiment from
Poundstone's book, volunteers are offered a certain number of dollars out of
$10. Offers seen as "unfair" ($1, let's say) activated the insula
cortex, "which is otherwise triggered by pain and foul odors." When
we feel like we're being ripped off, we literally feel disgusted -- even when
it's a good deal. Poundstone equates this to the minibar experience. It's late,
you're hungry, there's a Snickers right there, but you're so turned off by the
price, that you starve yourself to avoid the feeling of being ripped off. The
flip-side is that bargains literally make us feel good about ourselves. Even
the most useless junk in the world is appealing if the price feels like a
steal.
(7) We're easily made dumber
by alcohol, time, decisions.
When you're young and drunk at
a bar, you're more likely to do stupid things with strangers. "Am I fully
assessing this complex romantic situation?" is a difficult question to
answer on seven glasses of wine, so we're more likely to ask ourselves a
simpler question: "Is s/he hot?" When we're drunk, stressed, tired,
and otherwise inattentive, we're more likely to ask and answer simple questions
about buying things. Cheap candy bars and gum are situated near the check-out at
grocery stores because that's where exhausted shoppers are most likely to
indulge cravings without paying attention to price. Boozy lunches are good for
deal-making because alcohol narrows the range of complicating factors we can
hold in our heads at once. If you want somebody to take an under-examined risk,
get him boozed, tired, or ego-depleted.
(8) We're pained by
transaction costs...
In a personal finance column here, Megan McArdle implored her readers to give
up recurring payments like gym memberships and subscriptions to papers and
services they don't use. "Don't buy stuff you don't consume" seems
like obvious enough advice, but Megan had a great point. We're drawn to
subscriptions and memberships and bundles partially because we seek to avoid
transaction costs. We'd rather overpay a little than suffer the psychological
pain of pulling out a wallet and watching our money go to each gym
season/movie/etc.
(9) ... but we're weird about
rebates and warranties.
Now that I've just told you
that consumers try to avoid additional payments, I should add that there are
two additional payments we love: rebates and warranties. The first buys the
illusion of wealth ("I'm being paid money to spend money!"). The
second buys peace of mind ("Now I can own this thing forever without
worrying about it!"). Both are basically tricks. "Instead of buying
something and getting a rebate," Poundstone writes, "why not just pay
a lower price in the first place?'
"[Warranties] make no
rational sense," Harvard economist David Cutler told the Washington Post. "The implied probability that [a product] will break has to be
substantially greater than the risk that you can't afford to fix it or replace
it. If you're buying a $400 item, for the overwhelming number of consumers that
level of spending is not a risk you need to insure under any
circumstances."
(10) We're obsessed with the
number 9.
Up to 65 percent of all retail
prices end in the number 9. Why? Everybody knows that $20 and $19.99 are the
same thing. But the number 9 tells us something simple: This thing is
discounted. This thing is cheap. This thing was priced by somebody who knows you
like things discounted and cheap. In other words, 9 has transcended the status
of charm price to become a cable of silent understanding between buyer and
seller that a product is being priced competitively and fairly. Putting a 9 on
a shell-fish platter at a high-end restaurant is ridiculous. Nobody spending
$170 on lobster is looking for a discount. But the same person shopping for
underwear is (research has shown, again and again) more likely to buy a product
that ends in 9. Remember: Shopping is an attention game. Consumers aren't just
hunting for products. They're hunting for clues that products are worth buying.
In the number 9, the bargain-hunter/discount-gatherer corner of our brain spots
a pluckable deal.
(11) We're compelled by a
strong sense of fairness.
I've already explained how our
brains light up differently based on seeing a bargain vs. a rip-off. The
shopper's brain is motivated by a sense of fairness. Again, it comes back to
the idea that we don't know what things should cost, and so we use cues to tell
us what we ought to pay for them. An experiment by the economist Dan Ariely
tells the story beautifully. Ariely pretended he was giving a poetry recital.
He told one group of students that the tickets cost money and another group that
they would be paid to attend. Then he revealed to both groups that the recital
was free. The first group was anxious to attend, believing they were getting
something of value for free. The second group mostly declined, believing they
were being forced to volunteer for the same event without compensation.
Well then, Happy Shopping!
