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This is an excerpt from Dollar Scholar, the Money newsletter where news editor Julia Glum teaches you the modern money lessons you NEED to know. Don’t miss the next issue! Sign up at money.com/subscribe and join our community of 160,000+ Scholars.
I wrote a story in May about how 56% of respondents to a recent survey say they think the United States is experiencing a recession — when in reality, the economy is doing just fine. There’s a lot of reasons for the disconnect (politics is a big one), but at the heart of the issue is the fact that everyday Americans are still feeling crushed by the cost of living.
The cost of dining out, for instance, is up 4% from a year ago. Mortgage rates are high; in many places, rent increases have outpaced wages. And don’t even get me started on auto and home insurance.
Every dollar counts these days, and that means it’s extra-important to understand the quiet forces shaping my spending habits.
What common marketing tactics should I look out for while shopping?
Tong Guo, a marketing professor at Duke University’s Fuqua School of Business, tells me that there are “a lot of psychological biases that get exploited by marketers.”
A classic one is left-digit bias, which is our tendency to focus more on the leftmost number in a price than ones further to the right. Although it’s really only a single-cent difference, consumers perceive $4.99 to be significantly cheaper than $5, which is an underestimation that “hugely increases purchase likelihood,” Guo says.
Because more purchases = more profit for the company, this strategy is super popular. According to a 2022 academic paper that analyzed thousands of grocery products, a whopping 87% of prices end with 9.
In fact, the phenomenon runs so deep that it influences stock prices and the design of price tags.
“They use a smaller font for .99,” Guo adds. “Even from the framing of that price tag, they try to exploit the bias to turn your attention to the left part instead of the right part of the digit.”
Another way marketers nudge shoppers to spend more is by manufacturing scarcity. For instance, a Publix promotion may dictate that you can only buy four of an on-sale item when in reality it’s well-stocked. By telling shoppers there’s a limit, the retailer is making the time seem rare — and pushing you to take advantage ASAP.
“People think, ‘OK it’s going to run out,’ but also ‘[other] people are buying it because it’s good, so I have to buy it also,’” says Julio Sevilla, a marketing professor at the University of Georgia.
One of the most famous examples of synthetic scarcity was masterminded by De Beers, a diamond company. For most of the 20th century, De Beers all but had a monopoly on the diamond market, first restricting supply (by stockpiling them) and then rolling out an advertising strategy that drove up demand (by making diamond engagement rings a rite of passage for young lovers). Diamonds are still seen as precious and rare today.
More recently, we’ve seen this happen with special-edition Beanie Babies and Stanley cups. It doesn’t just apply to perceived scarcity of the product, either. A similar effect takes place when there’s a scarcity of time, like a promotion that only runs for a few days.
“[Having] a limited time to buy often tends to cause us to want to buy more — and be willing to pay more,” says Charles Lindsey, a marketing professor at the University at Buffalo.
Price comparison is another big theme here. Sevilla points to companies like Johnson & Johnson, which is known for selling products in a bundle (like Johnson’s First Touch Baby Gift Set, a package containing bath wash, shampoo, lotion and diaper rash cream).
“As soon as you bundle something, you create a collection, people think they’re getting a deal,” he says, regardless of the actual math.
It’s all in how our brains work: We like to feel like we’re outsmarting the retailer, like we’ve found a secret way to score a good price.
On that note, Lindsey says the order in which we encounter different prices can also govern how we respond to them.
Say I’m looking at flights on Southwest’s website. The airline lists fares from most expensive to least expensive, starting with Business Select and ending with Wanna Get Away. Because we tend to read from left to right, that means consumers start by looking at the costliest option and end with the cheapest. By the time I finally reach that Wanna Get Away fare on the far right, it seems like a great deal.
And honestly, Southwest is probably hoping that I don’t reach that base fare at all. It wants me to stop in the middle and select an Anytime fare because it appears to be a discount. Even if only 1% of customers fall for it, that’s a multi-million-dollar-win for Southwest, Lindsey says.
“We don’t make evaluations in a fishbowl,” he adds. “We use context.”
The bottom line
Retailers are brilliant at using psychological tricks to impact my behavior. Many of the most popular marketing techniques revolve around nudging me to spend by making me think an item is special or cheaper than usual.
Guo says that while it’s impossible to entirely avoid them, awareness that these marketing tactics exist helps. Now that I know about these tricks, I can recognize them while shopping — and maybe mitigate their influence.
More from Money:
Why Are Store Return Policies Suddenly Getting Worse?
What Common Items Should I Never Buy?
Is It Risky to Give My Phone Number to Stores and Restaurants?
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