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I just finished reading Bargain Fever: How to Shop in a Discounted World by Mark Ellwood and it was SO good! I highly recommend this book to any shopper or saver, or anyone who is interested in marketing or psychology. It talks about the psychology behind prices and why we buy and the strategies that brands and retailers use to deceive us into spending more.
I highly recommend reading the entire book, but I want to share with you some of the most fascinating pricing and advertising tactics that I learned.
Say you’re at a restaurant and the “specials” are sirloin steak for $35.95 or grilled salmon for $20.95. Compared to the steak, the salmon looks like a steal! And maybe to reward yourself for choosing the thrifty option, you spend the “leftover” money amount on dessert.
Guess what. They want you to order the salmon, not the steak. The steak is the anchor price, setting your reference point so that the salmon looks like a good deal. It’s likely the salmon also has a greater profit margin.
It doesn’t just apply to food either! Think designer handbags, clothes, cars…anything really.
Or even diapers.
Bargain Fever talked about how when Proctor & Gamble introduced Pampers, people were reluctant to switch over from affordable cloth diapers. So P&G introduced Luvs as a luxury brand. Suddenly Pampers didn’t look like such a splurge and they started to sell. Fast forward to the beginning of discount stores like Costco and suddenly the diaper brands struggled to compete in those stores. The solution? P&G made Luvs a discount brand for those stores.
Groups of Three
Another tactic similar to price anchoring is to advertise items in groups of three. For example, say there are 3 bikes on display at your local sporting goods store. You’re too thrifty to splurge for the top of the line bike, but you don’t want to feel like a cheapskate, so you avoid the cheapest option. The retailer has you exactly where they want you: right in the middle. We also have a tendency to assume the cheapest option has inferior quality, especially when it comes to things that may have safety concerns, such as bikes.Another tactic similar to price anchoring is to advertise items in groups of three. Click To Tweet
.99 or .00
There are many studies that show that shoppers tend to associate prices that end in .99 as a deal. We tend to round those numbers down in our mind. When calculating prices, we’d see a $9.99 item as $9 instead of $10.
On the other hand, prices that end in a 0 are viewed as high quality and luxurious. Check the price of purses at Target versus Coach and you’ll likely see that Target ends in .99 while Coach ends in .00.
People also look at prices that end in 6 or 7 as something priced to move, on sale, or clearance. Have you noticed that most of Wal-Mart’s prices end in .97?
I also recently learned about the concept of shrink rays and came across this website. Shrink rays are when products suddenly become smaller and yet the price stays the same. I totally believe it! I actually noticed my cans of Spaghettio’s got a little shorter when they celebrated the 50th anniversary.
I also read that if a product is “new and improved” or has some new feature, formula, or label, then that’s when shrink rays are more likely to strike. They try to slip in the change unnoticed then.
Speaking of “new and improved,” check out this picture. It made me stop and think. When a product says, “33% more” more than what exactly? More than the previous bottle or version? More than the competitor brand? Most likely it’s just an arbitrary number to make you feel like you’re getting a deal.
Dopamine and Spending
Studies show that getting a deal produces dopamine. Dopamine is a neurotransmitter that often gives the sensation or pleasure or reward, and therefore plays a role in addiction. Finding deals releases a burst of dopamine in our brains! Studies also show that having a coupon and anticipating the forthcoming deal produces more dopamine than actually buying the item.
This is why we tend to miss all logical cues and signals when it comes to getting a deal. Like seeing the sign that says, “2 for $4!” and overlooking the “or $2 each” in fine print, we quickly grab 2 and feel proud of our deal! Or the times when even with a coupon, the generic brand is a better deal than the name brand, but we use the coupon regardless. (I am SO guilty of that one.) How about the shampoo that has a lower cost per ounce for the bigger bottle, but we buy the smaller one that’s “on sale.”
Don’t Fall For It
We are intelligent, rational people…that can easily get sucked into the thrill of a deal. It’s important to take the emotion out of shopping and let go of the thrill of a deal, so we can break that cycle of a dopamine rush. Shopping with intention, paying attention, doing our research, and buying only what we need, is a way to buck the system. Bargain Fever gives more insight and details into the science behind spending and shopping, this post is just the tip of the iceberg. Definitely read this book.