November 26, 2013

Deals That Aren’t

Disclosure: This blog post contains Amazon affiliate links. I may earn a small commission with each affiliate link click. For more details please see my full disclosure about blog profit.

Behavioral economics is a field of study that explores the hows and why of consumer shopping; the social, cognitive and even emotional decisions that are in play during a purchase. As consumers like to think of ourselves as rational, but we can often be influenced by other factors that lead us to make irrational decisions. Consider free shipping. Consumers (myself included) typically hate shipping costs, and will pay more for an item with free shipping thinking they’re getting a better overall deal (not necessary). Another emotional decision influencer is the presence of sale signs. We’re more likely to make a purchase if we think we’re getting a better deal. Some retailers are marking up prices to offer better ‘sales’ without lowering the final price this holiday season.

My tips to avoid sales that aren’t sales:

Start with a list. Lists are great in general to curb impulse buys as they can keep you focused. Spend some time figuring out what features you like (and thus are willing to pay for) and what features you don’t mind (but won’t pay extra for). It’s probably too late for this season, but I recommend creating your list before looking at any holiday circulars to avoid any subconscious influence.

Get a baseline price. Once you have your list do some comparison shopping. I typically use CamelCamelCamel.com and Baby Cheapskate to get an idea how much the things I’m interested in historically have cost. I’ll also typically do a internet search to find out what other retailers are selling an item for. These datapoints can give me a base line price that help me distinguish if an item is actually on sale and how good the sale is.

For example, that Calphalon Unison Cookware Set? Amazon says the list price is $1000, and thus the $335 price was 67% off. Or so they claimed. CamelCamelCamel lists the average price from amazon as $537, and Bed Bath and Beyond list it for $599.99, ($479.99 after 20% off coupon). The $335 is still a good price, but more like 30% off, not 67%.

Realize There’s Often a Reason for a Price. Ever look at a Black Friday circular and wonder how any company can stay in business offering things like $2 waffle irons? Many of those rock bottom prices are on items manufacture specifically for the November/December shopping rush. They’re more cheaply made, with fewer features and lesser parts. If that’s what you want, great! But keep in mind it’s not the same item as the one that’s being sold for 10 times as much, and shouldn’t be used when figuring out the base line price.

I suspect the TV we purchased last year falls into this category. It was a very cheap price for the time (sub $400 for a 50 inch) and only came on the market June that year. The price never really rose to the level that you’d expect of TVs for that size. That’s okay for us. It’s our first flat screen TV and we’re unlikely to notice if it has sub par picture capabilities. Anything beats our old rear projection TV, even a cheaply made TV with fewer HDMI ports.

Remember, it’s not the % off that matters. It’s the price you’re paying (including shipping) to get the features you want.

Identify Multiple Alternatives One strategy retailers will use is to try and get you emotionally invested in the particular item they are selling. Last time I went to a car dealership the dealer kept using possessive pronouns. Let’s go pick out YOUR car, how about you drive YOUR car to the front lot? (emphasis mine.) If I start thinking of one particular car as ‘mine’ I’m likely to agree to pay a little more for it when we negotiate the price, or agree to extras/accessories I wouldn’t otherwise get. If I remember that there are multiple dealers with multiple cars of the same make, model and color, I’m more likely to remain objective.

It’s best to find several similar products that fit the bill. When that’s not practical, look for several retailers with comparable prices on an item. If you find yourself fixating on one particular deal ask yourself is it the item you really want, or the deal.

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