SHOPPING PSYCHOLOGY: Shopping lessons from a behavoural economist could save you making an expensive mistake with an impulse buy, writes MICHAEL FREEMAN.
FOR CENTURIES, the foundation of classical economics has been the idea of the “rational man”. Rational Man is the model used by economists to predict how consumers will behave. When Rational Man goes shopping, he looks at all the options available to him, weighs up all the costs and benefits, and purchases the items which will give him the greatest long-term value for the smallest outlay.
That, however, is not how real people behave. When Actual Man (or indeed Actual Woman) goes shopping, he looks at all the options available to him; can’t decide between them; is temporarily distracted by a daydream about life as a professional beach analyst and cocktail investigator; goes to another shop to return the things he regrets buying on the last shopping trip; goes to a third identical-seeming shop; and tries for some time to weigh up all the costs and benefits, but can’t remember them exactly. Then – exhausted and emotional – he panics, and buys something foolish.
However, insights from a growing area of research, known as behavioural economics, might help us avoid this whirlpool of shame, self-loathing, and unnecessary retail expenditure.
Pete Lunn is a behavioural economist based at the Economic and Social Research Institute in Dublin’s docklands. “Classical economics has always assumed that consumers know what’s best for themselves,” he explains. “And what behavioural economics has shown is that that’s nonsense. That simply isn’t the way we behave.”
We do irrational things when we’re shopping, he says, because we’re driven as much by unconscious instincts as by rational choices. And those instincts sometimes lead us astray. But if we can learn about how they work, it might make us better at avoiding those “Leather hotpants? Perfect!” moments.
“There’s no question,” Lunn says, “that being aware of what I would describe as your own frailty is very important. It makes you a better consumer to be aware of the traps that people fall for.” These traps are important because retailers and marketers know that we have these instincts too; and it’s their job to exploit them. “A lot of behavioural economists,” says Lunn, “are discovering things that somewhere deep down marketing people knew all along.” The difference, however, is that behavioural economists are willing to tell us about it.
So what are they? Lunn’s favourite, he says, is the mid-range trick. “If there are three or four products in a range,” he says, “we tend to go for something that’s in the middle.” And retailers know how to manipulate this – by simply moving the middle of the range. “If you have product A and product B, and product B is higher up the range, people might be uncertain which to go for. But if a top-of-the-range product C comes in – even though the company knows it won’t sell very many product Cs – it’ll get lots of people to choose product B rather than product A.” This means, of course, that we end up paying for things we don’t need.
“Computers would be a classic example,” he says. “The salesperson tells you all the things computers can do, and makes you insecure that if you don’t have them you’ll be regretting this purchase for ever, because your computer will be the only one that doesn’t do them.” Even though you might no more understand the advantages of high-speed RAM than you do the extinct Iroquoian language of Susquehannock, nobody wants to be the odd one out.
This is all part, Lunn believes, of the main factor dictating our shopping behaviour: we’re nervous. “We often find it really difficult to value things”, he says. “Quite often we buy things that just languish in the back of a cupboard and we never use. Other times we buy things, and six months later we look back and think that’s the best thing we’ve ever bought.” This uncertainty means we’re more likely to buy things that are familiar and comfortable – even if they’re not the best value.
In fact, he explains, we don’t even have to have used them before for this to be a factor. Studies have demonstrated that “you are more likely to buy something that you’ve heard of, even if you have no idea whether it’s good or bad. The mere fact that you’ve heard of it before you walk into the shop makes you more likely to buy it.” Marketers can use this unconscious craving for familiarity to push us towards certain products.
This, says Lunn, is why they still use celebrity endorsements. We’re well aware that such endorsements aren’t genuine – that the celebrity in question has almost certainly been paid to eat the cereal, or use the shampoo, or drink the probiotic formula.
So why do we go and buy the product anyway? It’s all down to familiarity. “We prefer things that are familiar. And endorsement is all about that – it combines the fact that this is somebody you know, and you feel comfortable with, with the fact that they’re suggesting this product.” In other words, it’s more to do with making an association in our minds than it is with, say, taking Ronan O’Gara’s special advice on wristwatches. “That feeling of familiarity”, says Lunn, “is operating at a very deep psychological level that’s utterly separate from the real value of whatever the product is.”
The internet is sometimes seen as being something of a paradise for shoppers, a place where it’s easy to compare products and prices without having to traipse around a forest of shops. But according to Lunn, it’s more the case that there are simply a different array of traps, waiting for you to come crashing through the digital undergrowth and into their open jaws.
“On the internet, the environment in which you’re buying is different. And therefore, the kind of tricks that people can get up to are very different.” He gives the example of default options – the options that are already selected when you arrive at the web page – and mentions the way that Ryanair encourages you to buy travel insurance along with your flight. “Behavioural economists have shown that those default options are really powerful. If you have to actually check the travel-insurance box yourself, less than 10 per cent of people buy travel insurance. If they check the box for you, and you have to uncheck it, it rises to more like 40 per cent.” It’s like restaurants leaving a basket of bread in front of you, and then charging you if you eat any of it.
Another favourite online-shopping trick is to offer free shipping on orders above a certain amount. They’re hoping that this will encourage you to spend more than you might otherwise have done, to qualify for the “free” postage. And what’s more, they’re probably right. “Anything that’s called ‘free’, consumers go for disproportionately,” he explains.
“We really like free. And so by bundling free stuff in with other stuff, retailers try and lure you in a particular direction.” When it comes to not being sucked in by the quicksands of marketing, we’re often advised to shop around. But – quite apart from the fact that a Saturday afternoon in the city is more hazing ritual than retail experience – this may not, according to Lunn, always be the best advice.
“If you give yourself too much choice,” he says, “it becomes really difficult. If you consider too many products, behavioural economists have shown that you actually make worse decisions, because of the complexity. You should shop around, but there are real limits to that. If you shop around too much, you actually make your life harder.” This might be some comfort to the weary Christmas shopper, pounding the pavement in search of the perfect present. But, says Lunn, “shopping at Christmas is even harder. You’re under greater time pressure, so you’re more prey to tricks. You’re more susceptible to anything that looks like it’s a great deal and will save you time. And you’re more susceptible to advertising, such as an advert that suggests somebody like the person who you’re buying for would like this product. It’s also harder because not only do you have to value the object, you have to think about how somebody else would value it.”
In the end, when it comes to squeezing the best deal out of companies who are themselves wholeheartedly dedicated to squeezing you, there are no easy answers. “You’re in this constant game with them,” Lunn says. “All you can do is be aware of it, and scrutinise what’s on offer to see what really offers the most value.”
Behavioural economics can teach us what traps to avoid, but it can’t tell us what to get Granny for her birthday. “I must know of 300 behavioural economics studies,” Lunn says. “But I still stand in the shop wondering whether to buy something, and thinking ‘am I falling for this here, or should I actually go for it?’ ”
- Pete Lunn's book, Basic Instincts: Human Nature and the New Economics, is published by Marshall Cavendish (£19.99).