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We are in the final throes of the holiday shopping season and by this time you have been bombarded with discount offers and sales: 20 percent off, 50 percent off, buy one get one free, no money down, etc., etc.
So how do sales work, psychologically speaking?
“Imagine that a new car is $30,000 discounted to $20,000,” says behavioral economist Dan Ariely. “So you say to yourself, ‘Oh my goodness this is really worth $30,000, [but] right now it’s $20,000.’ It gives you an extra sense of value.”
And because sales are temporary they create a sense of urgency says Ariely. “It’s a short time thing and you better take advantage of this.”
But do sales actually get people to spend more? Or are they used to lure shoppers in, so that store gets its slice of a zero-sum pie?
“This is not just specifically for the holidays, but we’ve been finding over time that more than half of all shoppers are saying they want to spend no more than they had in the past,” says Amy Koo, a retail analyst with Kantar. “That puts a pretty firm ceiling on what they are willing to spend.”
Sales are also a good way to get people in the door … but what’s really important is that they come back again after the sale is over.
“While people may be spending the same, they are actually concentrating their spending on fewer stores, which make a big difference in terms of making sure you as a retailer try to secure the loyalty of the shopper,” Koo says.
Stores do that by offering programs that give deeper discounts to loyal customers.
There’s also the low-price guarantee. Walmart for example, has the Savings Catcher program. Shoppers scan their receipt, and if they find the same product cheaper at a competitor, Walmart issues a gift card for the difference, ensuring a return visit.
At an intersection in downtown Glendale, California, I met Lejaun Smith waiting to cross the street. He had a shopping bag in his hand, and I asked him if he’d been lured into the store by a sale, and if so, did that sale get him to spend more. “Yes, on both answers,” he said.
“Yes, spend more money and yes, get me through that door. And it works every time.”
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