Retailers employ leading marketers and psychologists to specifically design their marketing campaigns and stores to coax us into spending more money with them. Underneath the façade of stylish store layouts and brightly coloured billboards lies a darker truth, a truth that has been carefully conjured up to get you to part with larger amounts of your hard earned cash.
A previous article that I wrote explained some of the which tricks supermarkets use to entice you into buying more expensive things, but now I want to touch on some of the more general ploys used by retailers across the board. In general, they tend to use the following 5 tricks to get you to spend money, so hopefully by knowing the most common ones, you can consciously avoid being drawn into the lions den.
One of the best ways to get a customer to spend money is by making them think they are getting a great deal. Most of the time, you don't even need to be a professional Buckscoop deal hunter to quickly figure out whether a deal is any good or not. The most common tactic is for retailers to simply include items within a sale that they're looking to shift as most people flock to the sales first. In reality, what's often the case if they've simply re-organised stock from the same season so that one half is listed under "New Arrivals" and the rest are effectively marked as "On Sale". Customers will inevitably compare the sale prices to those of the new arrivals and feel they're getting better value for money.
If you're looking to spend a fair amount of money, then my advice is always to price compare online before actually buying something in-store (a quick Google search on your mobile is all that's needed). Reason being that you're very likely to find the same item available at other stores too. By comparing prices you'll give yourself a better perspective of the average market price, thus allowing you to make a more informed decision about whether the sale price you saw was in fact cheap or not.
Magic Number 9
Within a series of studies conducted between 1987 to 2004 by the National Retail Association, found that prices ending with the number 9 (e.g. $1.99) boosted sales by 24% for retailers. The university of Chicago & MIT conducted an experiment to test the power of 9 by producing three different catalogues. Each catalogue was sent to three groups, all consisting of the same amount of people. One catalogue had a price of $34, another $44 and the final $39. Yes, you guessed it, the product at $39 sold more units compared to both other options.
The Middling Effect
Generally speaking customers will shy away from the cheapest option because we don’t want to be seen as being cheap. At the same time not all of us can afford the most expensive option, so a happy middle ground suits the average shopper far better. Using this knowledge from psychologists, retailers tailor their pricing structures to hone in on this middling effect.
Southampton University created an experiment where they made two beers available. The first was a premium beer on sale for $2.50 whilst the other was a normal beer for $1.80. 80% of the customers chose the more expensive beer. When a third beer was introduced at $1.60, 80% of the customers bought the $1.80 beer and only 20% bought the $2.50 option. In this experiment nobody bought the cheapest alternative.
To provide a fair test, a second experiment was conducted, but this time the $1.60 beer was replaced with a $3.40 premium option. The majority of consumers bought the middle option, 10% bought the cheapest and the final 10% bought the most expensive.
Exclusivity and Veblen Goods
Certain people, maybe even some of your friends will always gravitate towards the highest priced items, to some it may mean it’s a better product, to others it might be a case of if I can afford it why shouldn’t I have it. Retailers know this and within such a status conscious society, some customers will pay the price no matter how high. These products in the industry are called Veblen. Retailers often exploit this psychology in their customers and increase the price of luxury items in order to generate larger profit margins. The retailer gets an increase in profits while the customer gets the perception of exclusivity. Everyone’s a winner, right? Wrong!
The Anchor Decoy
When retailers price a product too high they know its not going to sell but they use it to sell the products, which are priced lower. Basically it makes the less expensive products look more attractive. The anchor decoy gets people to spend more money because it makes the cheaper products look like they are a better deal. The iconic story is of Williams-Sonoma who introduced a bread-maker at a price of $279. When they introduced this model the product didn’t sell because everyone thought it was over-priced, but when they introduced a more expensive model at $429 you can probably guess what happened. The more expensive model had less features and this caused the public to buy many more items of the $279 version plus it made the market look bigger and helped the customer justify the purchase more.
Ultimately the retailer is always looking to get you to spend more money. However, if you become savvy to the techniques they use to make you believe you're getting good value, then after a while your ability to know when to buy and when to walk away from a purchase will no doubt begin saving you significant amounts of money over time.