It’s all relative.
Why this is important when you are shopping.
A couple of years ago I was talking on the phone with relatives in the Northeast who asked me how the weather in San Diego was on that February day. I replied, “it’s actually kind of cold.” I then asked them about their weather which they described as “pretty nice.”
The weather I was describing for San Diego was 58 degrees whereas their weather was 40 degrees but if you simply heard our statements you wouldn’t be able to guess that. How can 58 degrees be “kind of cold” when 40 degrees is “pretty nice”? The answer is simple: relativity. I was describing our temperature in relation to our previous typical San Diego days that are usually in the 70s and they were comparing their day to the preceding days when they had snow and ice and below-freezing temperatures.
Relativity is especially relevant when we are shopping. Take for instance a case where you are shopping at a store and you see a pair of shoes for $75. Most of us, in that case, would try to make an evaluation judgment in our heads trying to determine if this is a good deal if those shoes are worth paying $75. Now imagine this exact pair of shoes for that exact same price. But this time the price tag says “Were $125, Now $75.” Even though in both situations, the price one needs to pay is exactly the same, almost everyone would consider the second situation more appealing, simply because of the reference point used. Seventy-five dollars seems like a great deal when there is $125 to compare it to.
Given our tendency to rely on such reference points to determine “good deals,” it is important to be careful not to be tricked by them. Some simple lessons to keep in mind:
1)Is the reference price real? We can use our common sense, or previous shopping experiences, or even a quick internet search to confirm the validity of the reference point the marketer is using. Retailers often use “false reference pricing” in an effort to make their prices look like good deals.
False reference prices refer to a price that is presented as the “original” price of an item but one that the product has never been offered for. It is easy for a retailer to claim an “original price of $46” compared to a “sales price of $32” that conveys the sense of savings. But if the item is always offered at the “sales” price of $32, the “original” price is not really the actual price.
2) Be careful with decoy prices. Sometimes, marketers offer purchasing options whose entire purpose is to steer consumers to other options that the marketers want them to purchase. A decoy price is one that is quite obviously a bad option that most consumers would not pick. What is the point offering an item at that price then?
While the decoy product looks bad, by comparison, it makes another option more attractive. For instance, The Economist magazine was offering subscription options that included a digital subscription at $59, a print subscription at $125, and a combined digital and print subscription also at $125. Clearly, nobody in their right mind would pick the print-only subscription for $125 when they can get print plus digital for the same price. In offering the decoy option, the magazine tried to make the combo subscription package look more attractive, likely knowing that many readers would probably prefer to only get the digital option for a lower price otherwise.
3) Do you really want the item? If you are looking for a specific item and you see a good deal for it, it is one thing. But if you are inclined to buy something that does not really interest you, simply because it seems like a great deal, it is unwise, even if the savings are real and great.
For example, if you have been thinking about taking fencing lessons and you see a deal where a series of lessons normally offered at $500 are now offered at half-price at $250, by all means, go for it! But if you have zero interest in fencing, the fact that you can save $250 is rather meaningless and for all intents and purposes, spending $250 on these lessons may be a waste compared to spending it on something else that truly interests you.
