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In today’s Wall Street Journal, writer Christina Binkley explores the psychology behind over-priced luxuries in her article titled, “The Psychology of the $14,000 Handbag.” You’ve probably walked by the high-end boutiques and wondered about the kind of person who may frequent these shops and pick up a $14,000 suit. Binkley points out that there is an overall (positive) economic benefit in selling the expensive suit (when you can get one for a couple hundred dollars).
It’s rare that someone would walk in to buy an expensive suit, but the high-end items create “anchors” that allow retailers and manufacturers to sell other products that comparatively seem “cheap”. The psychology behind the price of the item will speak to the consumer telling her that she is getting a deal on a lower priced item. Of course, the lower priced item may still be expensive, but it is cheap compared to the higher end item.
Many companies use such marketing scheme. Whether it is high-end refrigerators, computers or luxury sofas, the expensive product helps a company create a consumer line that may be more friendly to the budget of the consumer, yet allow the company to manipulate the price in its’ favor. This is basic economics (capitalism-style).
The article goes on talk about how many companies are irritated by the Walmarts and Targets that compress the ceiling and the consumer line, which forces other retailers and manufacturers to lower their prices. This is basic economics as well.
As a consumer, we live in an age where we have greater choices, where we can quiet the psychology of “the deal.”
- Shop around. We have access to the internet. This is a great avenue to find budget-friendly items.
- We need to be released from “the deal” mentality. I know I am always excited to find the best deal. But there are a couple things that I remind myself that helps me be a bit more careful before branding something as a “deal”. First, I assume that expert marketers, advertisers, and companies have a leg up on me. The system gets a deal off of me more often than I may get a deal off the system. In other words, what I think of as a deal is probably not really a deal. Second, the deal mentality can easily play into my consumerism. The perception of a deal could push us to purchase items that we may not need or are out of our budget.
- Compare down, not up. Rather than compare with the high-end product, we need to practice comparing with the lower-end product. By comparing with the lower-end products, we may find ourselves more honest with what we really need.
Market and economic forces are not necessarily in our favor. It is especially important for Christians to recognize how to engage our economy and consumerism. The Kingdom of God has much to say on how to steward our choices and finances.
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Thanks for this post. Good to remember how shrewd marketers are with psychology. Costco is the king of this kind of mentality since not only do they offer things at a relative discount, when you see it in the store, there is no guarantee that it will be there the next time you come. It gets you at the “deal” level and the impulse buy level and actually makes you rationalize the impulse buy with a hint of scarcity mentality. I don’t want to say this is insidious, but as you pointed out, it’s important to know how people are trying to affect your thoughts.
I don’t know if this is related, but I’m curious about your thoughts. Your first suggestion states, “We have access to the internet. This is a great avenue to find budget-friendly items.” I’ve held the notion that cheapest isn’t always the most cost-effective because the low price could mean low quality and instead of buying one pair of shoes that last for $80 five years, you end up buying three pairs of shoes for $30 each that last only a year each. How should we weigh quality and price.
Secondly, and perhaps more tangentially, you mention the internet, where people may have better prices than in our local shops. What do you think of paying higher prices local shops in order to keep the money within the local economy? (You know my allegiances here, but this is a real question I’ve been asking for a while and I’m curious to see how you would deal with it.) I suppose this question is more of the ethical, “Know where your money is going,” type.
You’re right, cheapest is not necessarily the most cost-effective. There are certain products where you really are getting what you pay for. The value is not “look for the cheapest” but look for the one that has the best value. Thanks for that clarification.
And regarding your second point, well said. You come from a small business ownership family, so I know that supporting the local store is a strong value for you. I find myself always struggling with the two competing values–buy local (whatever that may mean) versus buy the discounted and save money and/or give it away.
Let me muse on these ethical questions a bit. I probably pay more attention to money stuff than most people (sometimes bordering obsessive), so this would be a good exercise for me.