Shop ‘Til You Drop: The Crisis of Consumerism

 

Are we too materialistic? Are we willfully trashing the planet in our pursuit of things? And what’s the source of all this frenetic consumer energy and desire anyway? In a fast-paced tour of the ecological and psychological terrain of American consumer culture, Shop ‘Til You Drop challenges us to confront these questions head-on. Taking aim at the high-stress, high-octane pace of fast-lane materialism, the film moves beneath the seductive surfaces of the commercial world to show how the flip side of accumulation is depletion — the slow, steady erosion of both natural resources and basic human values. In the end, Shop ‘Til You Drop helps us make sense of the economic turbulence of the moment, providing an unflinching, riveting look at the relationship between the limits of consumerism and our never-ending pursuit of happiness.

 

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Upscale “Shop ‘til You Drop” is for Poor Extraverts

Among low-income groups, extraverts spend more than introverts on luxury goods

Source: Upscale “Shop ‘til You Drop” is for Poor Extraverts

Kevin Bennett Ph.D.

Many of us like to shop, but new research shows that personality type is associated with purchase patterns of luxury goods.

Research by Landis and Gladstone (2017) published in the journal Psychological Science explored the relationship between personality, income, and shopping patterns.  They found that among low-income households, extraverts were more likely than introverts to spend money in ways that promote status.  That means spending money you do not have to create the perception of living in a higher socioeconomic group.

In this study, examples of “high status” items include golf, art, electronics, clothes, and foreign airline travel.  This effect, known as “compensatory consumption,” reveals how differences in personality contribute to spending habits in the context of low income.  It appears that extraverts and introverts living in low income conditions adapt in different ways.  Extraverts were more concerned with buying items and services that signal higher status.  For example, taking friends out to a Michelin three star restaurant or buying a Rolex when you can only afford a Rolecks.

ladylamb monogram/Flickr
Source: ladylamb monogram/Flickr

 

The study included 718 individuals from the United Kingdom who agreed to provide bank transaction information to the researchers over a 12 month period.  Participants also completed a questionnaire that measures the “big-five” factors of personality: Conscientiousness, Agreeableness, Neuroticism, Openness, and Extraversion.

Patterns of spending were examined over the course of the study within the context of relevant variables including age, income, and debt levels.  Extraverts spent more money on high-status items even after statistically controlling for factors like gender and employment status.  The pool of financial resources available for this group is small compared to high income groups, yet extraverts and introverts were allocating this money in contrasting ways.  Extraverts in this category were less likely patronize pawnbrokers, discount stores, and purveyors of other “low status” merchandise.

References

Landis, B. & Gladstone, J.J. (2017). Personality, income, and compensatory consumption: Low-income extraverts spend more on status. Psychological Science, August,1-3.

 

Kevin Bennett, Ph.D., is a social-personality psychologist, Assistant Teaching Professor, and Director of the Personality and Human Performance Lab (PHPL) at The Pennsylvania State University, Beaver Campus.

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Are You a Conflicted Consumer?

Tightwads, spendthrifts and the pain of paying

Source: Are You a Conflicted Consumer?

Alain Samson Ph.D.

A quick self-assessment

Let’s skip the usual introductory text and start with a short self-assessment. Please complete the three questions below and take note of the score associated with your answers.

1. Please read the following scenario about the behavior of two shoppers and answer the question below.

Mr. A is accompanying a good friend who is on a shopping spree at a local mall. When they enter a large department store, Mr. A sees that the store has a “one-day-only-sale” where everything is priced 10-60% off. He realizes he doesn’t need anything, yet can’t resist and ends up spending almost $ on stuff.

Mr. B is accompanying a good friend, who is on a shopping spree at a local mall. When they enter a large department store, Mr. B Sees that the store has a “one-day-only-sale” where everything is priced 10-60% off. He figures he can get great deals on many items that he needs, yet the thought of spending the money keeps him from buying the stuff.

In terms of your own behavior, who are you more similar to, Mr. A or Mr. B? Pick a number on the scale.

5 – Mr A
4
3 – About the same or neither
2
1 – Mr. B

2. Some people have trouble limiting their spending: they often spend money—for example on clothes, meals, vacations, phone calls—when they would do better not to.

Other people have trouble spending money. Perhaps because spending money makes them anxious, they often don’t’ spend money on things they should spend it on.

a. How well does the first description fit you? That is, do you have trouble limiting your spending?

1 – Never
2 – Rarely
3 – Sometimes
4 – Often
5 – Always

b. How well does the second description fit you? That is, do you have trouble spending money?

5 – Never
4 – Rarely
3 – Sometimes
2 – Often
1 – Always

3. Which of the following descriptions fits you better?

1 – Tightwad (difficulty spending money)
2
3
4
5
6 – About the same or neither
7
8
9
10
11 – Spendthrift (difficulty controlling spending)

Once you’ve finished, sum up all your answers. You should now have a number between 4 and 26. If your total score is between 4 and 11, you’re classified as a tightwad. If it’s between 19 and 26, you’re a spendthrift. Finally, if your score sums to a number between 12 and 18, congratulations – you’re an “unconflicted” consumer.

What does this mean?

According to a recent review by Scott Rick, who created the tightwad-spendthrift (TW-ST) scale, your results indicate how intensely you experience the pain of paying – the unpleasant feeling you may get from spending money. The pain of paying is a self-regulatory mechanism, as it can help deter overspending. Tightwads experience the pain of paying more intensely. They may encounter instances in which they think they should buy something, but distress prevents them from acting on that belief. The opposite is the case for spendthrifts, who experience less pain of paying and may end up spending more than they would ideally like to spend. While tightwads and spendthrifts are conflicted in different ways, neither are happy with how they handle money.

Being a tightwad is not exactly the same as being frugal. Rick maintains that frugality is more about a “pleasure of saving,” whereas tightwaddism is more closely tied to a pain of paying.

Why does it matter?

Since tightwads and spendthrifts experience the pain associated with spending money differently, they also react differently to certain marketing manipulations.

Research suggests that tightwads are more tempted to spend money when exposed to marketing messages that reduce their pain of paying. In one study, tightwads were more likely to pay a fee associated with an online purchase when it was framed as “a small $5 fee” than when it was framed as “a $5 fee”. Spendthrifts, who are more likely to spend money in the first place, were completely insensitive to this framing. Similar results were found in an experiment that framed a massage as either pleasurable (higher pain of paying) or healthy (lower pain of paying). Consistent with these findings, a subsequent study on “vice” product purchases (e.g. cookies or soda) found that tightwad/spendthrift differences in spending were smaller when research participants paid with credit (lower pain of paying) than when they used cash (higher pain of paying).

Does this mean that spendthrifts are immune to framing and purchase contexts? Not necessarily. Research on ‘opportunity cost neglect’ suggests that increasing the pain of paying can reduce the likelihood that spendthrifts will make an expensive purchase. Their experiment asked individuals to choose between a good $700 stereo and a better $1000 stereo. When selecting the cheaper stereo was framed as “leaving you $300 in cash”, spendthrifts were significantly less likely to choose the more expensive stereo. No such difference was found among tightwads. Naturally, it would not be in marketers’ interest to highlight opportunity costs (and increase the pain of paying) associated with making a more expensive purchase.

The takeaway

At the end of the day, we are left with a simple conclusion for conflicted consumers: If you are a spendthrift, you may want to examine your general attitude towards spending. Taking into account opportunity costs (saving money or spending it more wisely) will be a good start. If you are a tightwad, there is no aspirin to ease your pain of paying. If you’d like to reduce your conflict, live a little. If not, beware of your susceptibility to clever marketing that tries to make you feel better about spending money.

Alain Samson, Ph.D., is the founder of the Behavioral Economics Group and editor of the Behavioral Economics Guide, which is available on his domain, BehavioralEconomics.com.

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The [brand] connected consumer – Tiffany White 

 

Tiffany White tells a cautionary tale about the modern, connected consumer.

Tiffany Barnett White is Associate Professor of Business Administration and Bruce and Anne Strohm Faculty Fellow at the University of Illinois, College of Business. She joined the faculty at Illinois in 1999 and received a Ph.D. in marketing from Duke University in 2000. Professor White is a consumer psychologist with research interests in the area of consumer-brand relationships. Her research addresses affective, cognitive, and behavioral aspects of these relationships, including self-brand attachments and the development and deterioration of consumer trust. Her research has been published in top journals in marketing and consumer psychology. She is married and the mother of two children.

https://business.illinois.edu/profile/tiffany-white/

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10 Reasons Why People Spend Too Much

Make better financial decisions with behavioral economics.

Source: 10 Reasons Why People Spend Too Much

Shahram Heshmat Ph.D.

Many Americans live beyond their means. The recent CFPB survey found that about one-third of people ages 30 to 49 had more credit card debt than savings (CFPB, 2017). What drives us to spend too much? Behavioral economics provides some insights as to why we go over budget and how to curb the impulse.

1. Opportunity cost neglect

In a world of scarcity, choosing one thing means giving up something else. When we spend money on one thing, it’s money that we cannot spend on something else, now or later. So there is an opportunity cost to everything we do. And that cost is expressed in terms of the next-best alternative. For example, the true benefit of buying a new car can be assessed in terms of other equally significant items we could have done with the money.

2. The curse of mental accounting

Mental accounting involves dividing your money into separate mental accounts, such as accounts for food, clothes, rent, school supplies, indulgence, and the like (Thaler & Sunstein, 2008). Spending is constrained by the amount in different accounts. That is, we only consider the opportunity costs within a specific account without looking at the bigger picture. For example, I gave my daughter money for her birthday. She was behind on her student loan. She should have definitely spent the money on that. But she was reluctant to do so. She perceived the birthday gift as “free” money. The alternative to having mental accounts is to consciously compare all your purchases.

3. Special occasion

We tend to overspend on “special occasions” (birthdays or Christmas), because we don’t keep track of just how many of them we have. Consequently, we end up spending over our normal budget (Sussman, & Alter, 2012). Failure to incorporate an exceptional purchase into our budget as one in a series of special purchases can encourage overspending. You can budget for infrequent expenses by creating special savings accounts earmarked specifically, say, for birthdays.

4. Present bias

Present bias occurs when individuals place extra weight on more immediate rewards than those in the future. For example, my future self may want to buy a home, but my present self wants to splurge on a tropical vacation. The more we disregard our longer-term interests in favor of immediate gratification, the more likely that we will have the overspending problem.

5. Hard cash versus credit

Present bias explains why people have an easier time spending money on credit cards as opposed to spending real money. Paying with cash is more painful than paying with credit cards (Ariely and Kreisler, 2017). The main psychological force of credit cards is that they separate the pleasure of buying from the pain of paying. So if you want to get your spending under control, stop using credit cards.

6. The “what the hell” effect

The so-called “what-the-hell” effect suggests that falling off the wagon causes a feeling of failure, which leads to more indulgence (Herman, and Polivy 2010). This is a case when minor lapses snowball into self-control collapse (“If I’ve already blown it, I might as well go all the way”). For example, an amount, say, $100 for dinner in the context of a $3,000 monthly credit card bill seems smaller, less significant, and less painful than it does on its own. This is a common bias, especially where the credit card is involved.

7. Low on willpower

Willpower refers to effortful control that is exerted with the purpose of controlling our impulsive behavior. Willpower can be viewed as a resource. When resources are depleted, people tend to act on impulse and are more likely to be swayed by desires, urges, and cravings, although they may regret them in the long run. This insight suggests that shoppers who are distracted with music or displays will likely increase impulse purchases. In contrast, being deliberate allows one to see the overall context and be less concerned with sensation.

8. Retail therapy

People admit engaging in “retail therapy” (Cryder et al., 2008). The negative feeling causes a behavioral shift toward immediate improvements in mood. And when we are feeling down, we tend to splurge. Shopping allows people to visualize themselves in a “better” life, where they’re dressed in nice clothes or surrounded by nice things. Buying makes these visualizations a reality.

9. Shopping addiction

Shopping addiction is characterized as an impulse-control disorder (Black, 2007). About 6 percent of the population could be considered compulsive buyers. This disorder exists along a continuum. There are excessive shoppers, and there are compulsive shoppers. They buy things they do not need and often cannot afford, and place their work, their families, and their mental health in jeopardy. Some of those people who end up in bankruptcy are binge buyers, suffering from a disease similar to alcoholism. The most effective first step for treatment is to identify why and how your shopping initially became a problem. Experts suggest starting a journal to keep track of your triggers.

10. Self-justification

People are concerned with justifying their choices to themselves and to others. Making sense is a deep human motivation, but making sense is not the same as being correct (Wilson, 2011). For example, the person who has bought a luxury item, but feels guilty about it may try to alleviate his guilt by coming up with additional reasons that justify his choice, such as “it was on sale, I had to buy it.”

References

Ariely D. and Kreisler J. (2017). Dollars and Sense. NY: HarperCollins Publisher

Black D. W. (2007). A review of compulsive buying disorder. World Psychiatry 6 14–18.

Consumer Financial Protection Bureau (CFPB), Financial well-being in America September 2017,http://files.consumerfinance.gov/f/documents/201709_cfpb_financial-well-being-in-America.pdf

Cryder CE, Lerner JS, Gross JJ, Dahl RE. Misery is not miserly: sad and self-focused individuals spend more. Psychol Sci. 2008 Jun;19(6):525-30.

Herman, Peter C. and Janet Polivy (2010), “The Self Regulation of Eating: Theoretical Practical Problems,” in Handbook of Self-Regulation: Research, Theory, and Applications, 2d ed., Roy F. Baumeister and Kathleen D. Vohs, eds. New York: Guilford, 522–36.

Sussman, A. B., & Alter, A. L. (2012). The exception is the rule: Underestimating and overspending on exceptional expenses. The Journal of Consumer Research, 39, 800–814.

Thaler, Richard H. and Cass R. Sunstein (2008). Nudge: Improving Decisions About Health, Wealth, and Happiness .Yale University Press.

Wilson, TD (2011) Redirect: The Surprising New Science of Psychological Change. Little, Brown and Company.

 

Shahram Heshmat, Ph.D., is an associate professor emeritus of health economics of addiction at the University of Illinois at Springfield.

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Why Image Is Everything – Media Psychology

Recent research reveals that image and emotion beat fact and logic Source: Why Image Is Everything Douglas Van Praet If you think you purchase the goods and services you do based upon rational thinking, think again. Have you ever wondered why ads feature beautiful models, adorable puppies, cute babies and hilarious gags? Recent research reveals, […]

via Why Image Is Everything — consumer psychology research

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What Consumers Should Know About Good-Better-Best Pricing

Marketers sell different priced products to customers hoping for heftier profits

Source: What Consumers Should Know About Good-Better-Best Pricing

Utpal Dholakia Ph.D.

These days, good-better-best pricing is everywhere. When purchasing an airplane ticket, for example, passengers can buy the default coach ticket (good), pay for some extra leg-room by upgrading to “premium economy” (better) or pay through the nose and buy a business class seat (best). With all three tickets, the basic service is the same―aerial transportation from point A to point B. But the amenities (or the degree of discomfort suffered, for the cynical among us) vary.

Along similar lines, in bars, alcoholic drinks are priced low as rail drinkswhen the customer does not ask for any branded alcohol (good), higher as call drinks when a specific brand is requested (better), or highest as top shelf drinks for premium liquor brands (best). An Acura TLX vehicle comes in three versions: the base model has a 2.4 liter engine and an 8-speed automatic transmission (starting at $31,695; good); the mid-version has a 3.5 V-6 liter engine, and a 9-speed automatic transmission (starting at $35,320; better), while the high-end version is 3.5 V-6, 9-speed automatic with all-wheel drive (starting at $41,576; best).  As these examples illustrate, when using a good-better-best pricing approach (also known in the trade as “tiered pricing”), the marketer sells several different versions of the same product to consumers at different price points and corresponding quality levels.

1955 & 1956 Chevrolet ads by Insomnia Cured Here Flickr Licensed Under CC BY 2.0
Source: 1955 & 1956 Chevrolet ads by Insomnia Cured Here Flickr Licensed Under CC BY 2.0

 

For decades, marketers have packaged and offered different products to different customer segments. See the Chevrolet ads from the mid-1950s. No one would mistake the hoity-toity target customers of the 1955 Bel Air convertible with the blue-collar family that would find the 1956 Handyman station wagon to be appealing.

But this way of designing and pricing products based on customer segment differences is changing. With the good-better-best pricing approach, marketers now systematically offer different product versions to pretty much the same customers based on how much they want to shell out on a given purchase occasion. For instance, someone flying for work may buy a business class airline ticket because her company is paying for it; but on another occasion, she may fly in coach when shelling out of her own pocket.

 

So what do shoppers need to know about good-better-best pricing?

1) Marketers want consumers to trade up from the good option to the better option or from better to the best option.

By offering different choices, at the first blush, it may appear that marketers have shifted the decision of which version to buy each time over to the customer. But the truth is that through subtle and overt signals, marketers encourage customers to purchase the more expensive option than the one they had in mind to begin with.

Take the case of pork chops. A grocery store uses good-better-best pricing, promoting a deal on thin-cut chops (the good version) in the meat case at a mouthwatering price. But the meat case display strategically exhibits thicker-cut (better) and pasture raised organic chops (best) right next to the cheap chops. In such a line-up, the thin-cut chops won’t hold their own for most shoppers. The goal of such overt comparison is to lure buyers towards the more expensive choices. Kent Harrison, marketing VP of Tyson Fresh Meats described the logic in this way:

“Retailers must make sure to stock their case with a variety of choices, to give consumers the option of moving up to the next tier of quality, which will also be an opportunity for the retailer to gain higher total dollar sales.”

2) Many consumers oblige the marketer and trade up to the more expensive better or best options without careful thinking.

Once shoppers have made up their minds to purchase something, they are relatively easy to persuade about which specific item to buy. They routinely change their minds at the point of purchase. Often times, the situation itself may make the trading up decision an easy one. For example, if someone else is paying for your airline ticket, upgrading to premium economy or business class makes sense on a long-haul flight. Or you may be at a bar and having a really good time with friends. In the midst of this fun, ordering a top-shelf drink instead of a cheaper rail drink feels like a natural decision (after all, it’s only a few dollars more!). Or you may justify the expensive choice to yourself in other ways―“After all, I don’t buy a new car every day, so I might as well opt for the version with the bigger engine and the all-wheel drive.”

Pricing expert Rafi Mohammed provided an interesting example of Southwest Airlines introducing a “Business Select” fare in which customers paid $10 to $30 more, receiving amenities such as priority boarding, faster passage through security lines, and a coupon for an alcoholic drink. In evaluating the introduction of this better option, Mohammed noted:

“In its first year, I estimate this best version increased Southwest’s revenue by $100 million and operating profit by 10%.”

Why do marketers push consumers away from the good option and towards the better and best options so hard? The answer is straightforward.

3) As consumers’ choice shifts from good to better, and from better to best, marketers earn heftier profit margins.

In most cases, the good option is the company’s bread and butter. For airlines, it’s the coach seats on their planes in which close to 90% of their passengers fly. For vehicles, it’s the customers who buy the base version of the car or truck. And for hotels, it’s the travelers who book the standard room on the property. The good options are core products sold to core buyers that allow companies to cover their costs and stay in business year after year. Not surprisingly, companies are conservative about how much they are willing to charge for their good options. They cannot afford to lose this core business, so they will usually restrict prices on the good option. But things are different for the other options.

Somewhere over America by Thomas Hawk Flickr Licensed Under CC BY 2.0
Source: Somewhere over America by Thomas Hawk Flickr Licensed Under CC BY 2.0

When offering better and best options, such conservatism in pricing does not apply. By its very definition, customers interested in these more expensive choices are not as price sensitive. They are more conscious about factors like appearance, status, style, and performance. So companies can and do mark up these options to a much greater degree. Take the case of airline seats. On a flight from New York to London, an economy ticket may cost around $900, the premium economy ticket may cost $1,800 to $1,900 while a business class ticket may cost $4,000-5,000. Clearly, the incremental costs of offering the marginally greater leg-room, better meals, and free alcoholic beverages are not proportionally greater. So the airlines make much higher profits from these upgraded seats.

So what should consumers do?

Rather than evaluating actual prices of good, better, and best choices, consumers should focus on both price and quality differences between the choices. In some cases, the differences may justify an upgrade from the good to the better option, or from the better to the best. Paying a few hundred dollars more for being able to sit more comfortably and stretch out on a long trans-Atlantic flight may be well worth it for some fliers (especially when someone else is paying for the ticket). But in other cases, the higher price for the upgraded choice may not be justified. When mixed with Coke and smothered in ice cubes, a cheap rail rum that costs $2 per shot may be equally tasty and produce the same mellowness as a 50-year old Appleton Estate reserve rum costing $300/shot. The key is to pay attention and think through the value each option provides in relative terms, which few shoppers tend to do. Many times, the good option may be good enough.

 

Utpal M. Dholakia, Ph.D., is the George R. Brown Professor of Marketing at Rice University.

I teach marketing and pricing to MBA students at Rice University. You can find more information about me on my website or follow me on LinkedIn, Facebook, or Twitter @ud.

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