Take It or Leave It – the Science of Holiday Shopping
Holiday shopping is upon us. From Black Friday madness to spending a day at the mall to surfing the Internet for hours – we are all looking for the “best deal of the season.” I know this because I am already on the hunt for several gifts for family members. I have shopping alerts set up on several apps to let me know when a wish-list item drops in price. The endless ding and buzz of my phone alerts are enough to make me a little crazy. So why do I do it?
A phenomenon called “shopping momentum” occurs when a purchase provides a psychological impulse that encourages you to purchase a second, unrelated product. In other words, shopping leads to more shopping. Stores entice you with one deal to draw you in, and once you’re there, they hope you’ll be compelled to buy other items that aren’t discounted.
OK, so we fall for it every time. But again, why? Mental accounting is our tendency to mentally sort our funds into separate “accounts,” which affects the way we think about our spending. For example, we’re willing to spend more for umbrellas on a rainy day than we are when the sun is shining. The concept of mental accounting is associated with the work of economist Richard Thaler. According to Thaler, people think of value in relative rather than absolute terms. We derive pleasure not just from an object’s value, but also how we perceive the deal.
Mental accounting happens mostly because we perceive the value of objects relative to other reference points, rather than in absolute terms. When we are making decisions, the way our options are framed can also impact our perceptions of them.
Let’s use our holiday shopping as an example. Buying something at a price that’s lower than what we’re willing to pay, or lower than the standard price, is very satisfying to us. Most people tend to see “deals” as better than they really are when, in reality, sales happen all year round and prices during the holidays fluctuate over time. Enter the marketing team who coined the phrase “limited-time offer,” which can increase “anticipatory regret” (aka the “fear of missing out” or FOMO). Our mental account of “Holiday Gifts for Family,” coupled with FOMO and multiplied by the deal, drives us to:
1. Purchase additional items we otherwise wouldn’t because “hey, it’s the holidays and they’re family – we can splurge.”
2. Give in to the limited time offer because it feels like less of a gamble than trying to find a better deal somewhere else (and possibly failing).
The goal of the retailer is to leave us (the customers) feeling like the occasion itself is a good enough excuse to indulge in the additional purchases and willing to pay a premium for the additional items. You win this round, retailer.
Thaler suggested that the errors people make are not necessarily random, but instead are “predictably irrational.” Does knowing about our mental accounts help us to make better, more rational decisions? Maybe. But the holidays aren’t the only time that our mental accounts alter our judgement. Are you aware of when mental accounts are engaged in decision-making? You could be. Let’s chat.
Sources:
· https://www.acrwebsite.org/volumes/6945/volumes/v16/NA-16
