If you only live to buy it all, then whatever you attain will never be enough.
And you will probably overpay for everything without ever realizing it.
Did you know that the American consumer usually overpays for everything?
The typical consumer pays over $3,700 more on a car loan than the vehicle is actually worth. Some drivers are even duped into paying more than double what a used vehicle is worth.
American drivers collectively overpay their car insurance by over $101 billion.
Americans are even overpaying for generic drugs by over 20%.
It’s one thing to overpay for goods because you have been duped or tricked into it. Car dealers and car insurance sellers understand the system. They know how to get naive and uninformed consumers to pay more than they should.
And the pharmaceutical industry is manipulating the price of generics in secretive ways to make you overpay.
But did you know that businesses and retailers also use psychological warfare to manipulate you into overpaying for consumer goods, approving of it, and even feeling euphoria over it?
They have been doing this for a very long time. They even hire scientists and researchers to study consumer psychology and behaviors and even conduct social experiments to maximize their profit potential.
Here are four ways that retailers scam you into overpaying and even trick you into enjoying it.
Price Anchoring Tactics
The best way to explain price anchoring tactics is to first explain the scamming practice of “menu engineering.”
Menu engineers are consultants and consumer behavioral experts who deceptively design restaurant menus to trick you into paying more than you intended to. In fact, menu engineering tactics are designed to trick you into feeling good about overpaying even though you don’t realize you’re doing it.
Imagine that you are at a high-end and pricey restaurant. You’re shown a menu. There is a bottle of red wine or truffle and bleu cheese dressed Kobe-beef cheeseburger priced at $1,000.
You scoff at the price and then order something a price tier or two under that item.
Like a sucker.
The menu was socially engineered to make you repulsed at the idea of paying $1,000 for wine or a fancy burger. Now you feel psychologically validated to pay $400 or $500 on a two-person date. Even though those relatively cheaper items are overpriced as well, you are not paying $1,000.
Retail stores use this same tactic.
BOGO Deals
Have you ever felt a dopamine rush of excitement whenever you see a “buy-one-get-one” offer?
There are research papers that suggest consumers can’t resist themselves whenever they see the word “free” or “BOGO.”
Consumers love getting something for free. And they convince themselves that they are saving a few bucks while getting something free.
It isn’t true. You may get a free trinket or item, but the retailer is the only one benefiting.
BOGO deals are usually only available for a limited time so the retailer doesn’t lose everything. The retailer could have excessive inventory. Or they need to free up storage space.
Or they may just want to trick consumers into inflating their profit margin.
To get a BOGO offer, you may have to buy a minimum amount of goods first. Imagine that you have to buy $50 of goods in a supermarket or retailer before you get a free item.
Sometimes burger joints like Mcdonald’s or Burger King give away a food item for free with certain meals. But if a thousand people or more take up that deal daily for a month, and pay an $8 minimum per person to get the BOGO deal, then who benefits?
Just seeing “BOGO” or “free,” can have you happily impulse buying or overpaying just to get a free trinket.
Prestige Pricing Plans
Prestige Pricing Plans are kind of similar to the price anchoring scam.
Except with prestige pricing plans, you are tricked into feeling proud and emotionally validated into paying high prices for elite brand names.
When you see words like Fendi, Gucci, Yves Saint Laurent, Louis Vuitton, Prada, Balenciaga, Dior, or Chanel, what do you think of?
Probably paying exorbitant prices for the privilege of wearing a luxury brand.
But you are paying inflated prices for its own sake. Businesses hire consultants to track consumer behaviors and test pricing tolerances to gauge how high they can push prices before consumers revolt. And these tactics are backed by science.
Prestige prices is a rounded up exorbitant prices for a prestige or luxury brand. When you buy a luxury item, like a designer handbag, it’s usually for $770 or $1,180. Prestige prices never feature decimals in advertised prices, like $770.58.
Consumers think too much when they see decimals in a price. If Prada wants $940 for shoes, you just pay it! They’re a quality brand and luxury is not free, right?
No. You are just paying an inflated arbitrary price after being mesmerized by a luxury brand name.
Don’t believe me? In 2018, Payless Shoes conducted a social experiment in a Los Angeles store. They created a fake European-sounding luxury brand called “Palessi,” and plastered the fake name on their store for a day. Then Payless invited 80 social media influencers to the Palessi.
Payless presented $20 shoes to them and asked them how much they were willing to pay to obtain them
Some of the influencers said they would pay anywhere between $200 to $640 for the $20 shoes.
Coupons Use Causes Euphoric Reactions in the Mind
Coupon use can be financially beneficial in the long term. But most coupons offer middling discounts and savings. You need to use a coupon on multiple purchases, like every item in a supermarket cart, to realize significant savings. And even then, you have to continue the practice long term.
Unless you are really researching and comparing prices and have a disciplined long-term use strategy, then you are wasting your time.
Coupons are really designed to instill trust in consumers and make them loyal customers. And that is because there is scientific proof that using a coupon causes feelings of euphoria within the consumer.
Using a coupon triggers a mental euphoria and feelings akin to kissing or cuddling someone you lust for or love.
There is nothing wrong with using coupons. Just create a financial strategy that benefits you in the long term and realizes actual savings over time. Otherwise, you may be using them for their own sake.
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Allen Francis was an academic advisor, librarian, and college adjunct for many years with no money, no financial literacy, and no responsibility when he had money. To him, the phrase “personal finance,” contains the power that anyone has to grow their own wealth. Allen is an advocate of best personal financial practices including focusing on your needs instead of your wants, asking for help when you need it, saving and investing in your own small business.