Beware of the pricing tricks that make us spend more

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MUNMUN NATH

In last week’s MoneyMax.ph column, I discussed how our psychology could be playing a role in stopping us from spending our money wisely. One such fallacy I discussed was the lure of advertisements and promotional tactics. There is significant research available on how retailers use psychological pricing tactics to bait people to spend unnecessarily. So this holiday season, when you go Christmas shopping, beware of the following tricks:

Decoy pricing

Ever wondered why there are so many variations to the Apple watch series that range from P20,000 to P35,000? Higher priced models serve as decoys to make the others seem more affordable. Also, both the higher and lower priced models can make the mid-priced models appear as the best deal in terms of price, quality and features. Research has proven that when given a choice between three different products, consumers are most likely to opt for the median product. This, perhaps, explains why Apple has released three phone models (iPhone X, iPhone 8, iPhone 8 Plus) in one month. This could also explain why Starbucks drinks come in three or four different sizes.

High-low pricing


Do you get attracted to big sale stickers that show the regular price with an X through it and the lower price in big bold letters? This is a common sales strategy. Oftentimes, however, the regular price is increased prior to the sale to make the new price appear more compelling. If you find yourself tempted by such offers, always remember that spending P900 on something that is marked down from P1,000 isn’t ‘saving P100.’ It is still spending P900.

Buy one, get something free

There are many variations of this offer: Buy one and get 10 percent off your next purchase; buy one and get the second one at 50 percent; buy two, get third for free, etc. Often these offers can be bad deals if the retailer prices the free item into the price of the first item. There might be cheaper alternatives, but the offer tempts us to buy the more expensive option. In such cases, ask yourself: “Do you really need what you are buying or is it only for the free item?”

Prestige pricing

Wonder why Starbucks holiday drinks are more expensive than their regular drinks? Because customers associate higher prices with superior quality. Luxury products always use this strategy to convey their products are higher end. This appeals to their niche customers who use these products as symbols of their status and wealth. These prices are usually never discounted.

Charm pricing

Why do supermarkets usually price their products ending in odd numbers, commonly 9 and 99? This is called the ‘left-digit effect’ by which nine-ending prices are perceived to be smaller than a price one cent (or centavo) higher. However, it comes into effect only if the leftmost digit changes to a lower level (e.g., P10.00 to P9.99 is perceived as a bigger change than P10.50 to P10.49)

With all these psychological tricks at play by retailers, how does one avoid taking the bait? Here are some simple tips:

We often buy new things because we can’t see what we already have. Hence, always do an inventory check before shopping.

Often we come across a good deal and start to imagine a vacation when it might be useful. Avoid such future scenario uses and buy only what you need, right now.

‘Free’ is a dangerous word —when making a purchase decision, always focus on the items you are paying for, not the freebies.

Shopping takes time and often we feel guilty when we waste the time of the assistants. But really, it’s okay to buy nothing.

Armed with the knowledge of these common sale tactics, you should now be able to make smarter shopping decisions and spend your precious holiday budget more wisely. For more on such personal finance topics, visit our blog here: https://www.moneymax.ph/blog/

Munmun Nath is managing director at MoneyMax.ph, the Philippines’ leading comparison website for 100 percent unbiased information on insurance, credit cards and loans. For more info, tweet us: @MoneyMaxPH, like us on Facebook:MoneyMax.ph, email your comments to munmun.nath@moneymax.ph, and visit our website: www.MoneyMax.ph

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