photo © 2011 Justin Houk | more info (via: Wylio)Have you ever wondered why you walk into a store and no products have an even dollar cost? Candy costs .99 cents. A shirt costs 9.99. A TV costs 379.99. Have you ever wondered why Target puts “low price” markers on items that are not for sale? How about the signs that tell you how much you are “saving” when you spend money on a product?
Most of you are aware of these marketing techniques. Some savvy shoppers are astute and look past them. However, the typical consumer falls prey to these techniques regularly. It is important to understand how, and why, marketers use the strategies to increase sales.
Anchoring is a technique where marketers compare the price of their product to a similar, but more expensive, product. You can see this in print, television, and in store advertising.
The example that comes to mind when I think of anchoring is the loud “as seen on TV” type ads. A guy is yelling at you and says, “Similar products sell for thirty, forty, or even fifty dollars! But if you order now, you can get this cheap piece of crap for only $19.99!”
The human mind has an interesting interaction with that information. Simply put, you subconsciously believe that the product is worth upwards of $30, but you can “get a good deal” by purchasing it for less than $20. That is price anchoring.
Rebates, Sales, and Discounts
If you have ever opened an ad for a computer store, you have probably noticed that you can buy a computer for $499.99, but you have to spend $599.99 and mail in for a $100 rebate. So what is the product worth? I would say $499.99. However, they make it feel like you are “saving” $100 if you buy it.
Unless you really, really needed a new computer, you didn’t save a penny. In fact, you are leaving the store $500 poorer. But you feel really good because you “saved” $100.
This is another prominent marketing technique. No company would sell a product for a loss (there are a few exceptions), so if you buy it for $500, they are still making a profit. If you buy it for $600, they are making an extra $100. So did you save anything by buying it for $100 less? No, you just spent less. However, you still spent. The only way to save is not to buy at all.
Deceptive Sale Prices
I once saw a comedian who told us a story about going to the local drug store. He found quite a bargain; buy one for 50 cents or two for a dollar!
I have seen that one used at grocery stores and big box retailers to deceive you into buying more of a product than you really need. Just last week I walked into the local grocery store and saw that Cadburry Cream Eggs were on sale. You can get 3 for $2.79. In small text underneath, it said you could buy one for .93 cents. No deal there. However, without thinking or doing the math you might be tempted to take three.
At Target, the shelf advertising is notorious for saying “low price.” What does low price mean? Even though the marker looks the same as the sale tags, it means nothing at all. They are just making it look like it is on sale so it will stick out and you will buy one without thinking.
The .99 Fallacy
I couldn’t write a post about marketing psychology and not mention this one. Why does a product cost $4.99 instead of $5? Because $5 sounds like $5, and $4.99 sounds like $4. A TV for $389.99 sounds like $380 and a TV for $400 sounds like a hell of a lot more.
Like anchoring, marketers use this technique to bring the price down in your mind. Just be aware that the penny price difference brings in a lot of sales. Sure, some people are too smart to fall for it, but a lot of people are not. Even I have been guilty of justifying a purchase by rounding down generously.
Be Aware and Alert When Spending Money
At the end of the day, the job of a marketer is to drive sales. I do not believe that marketing is evil. It has its place in society and allows for businesses to grow, create jobs, fuel the economy, and bring great products to consumers. However, you have to be aware of marketing strategies and know how to react when presented with a deal that sounds too good to be true.
Have you ever been caught up in a marketing technique and later regretted it? Please share in the comments.
Get the FREE Personal Profitability Playbook
Earn more, spend thoughtfully, grow your wealth, and live a better life through mindful personal finance.