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June 18, 2010

Shoppers’ Minds

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Holiday shoppers beware. That pleasantly surprising sale price can actually bust your budget. A new study by a behavioral scientist shows why we often spend more when we're convinced that we're saving. This ScienCentral News video has more.

Sticker Shock

If you've ever gone shopping with one item in mind, found it on sale, and ended up buying more than you bargained for -- you're not alone. Economists call it the "spillover effect" when a sale on one item can spur extra spending on unrelated items throughout a store.

Behavioral economist Robert Meyer, a researcher at the Wharton School of the University of Pennsylvania, says that he's experienced this before. "You get home and you think, 'Uh, well why did I buy these things?'"

He says that retailers take advantage of this when they give you surprise promotions in the store. For example, retailer K-Mart became known for their "Blue Light Specials," which would alert customers in the store of an immediate discount. Companies use these specials to hopefully create a ripple effect throughout the store. "That little local surprise not only affects how many units that you buy of that one product, but also it affects your whole attitude towards what you do elsewhere in the store," Meyer says.

But no one knows exactly why it happens. To figure out the mechanisms behind this phenomenon, Meyer teamed up with the University of Arizona's Narayan Janakiraman and Arizona State University's Andrea Morales. They had volunteers shop in a virtual grocery store and instructed them to supply their household cupboards over a simulated 35 weeks. A $50 prize was given to the four volunteers with the lowest shopping costs.

Meyer found that, on average, if the price of the needed item was cheap, volunteers felt an obligation to stay in the store and shop. "They suddenly got these 'Wow!' discounts off one-fifth the price, and suddenly we found them stocking up on products which they didn't really need," he says.

But if the item was expensive, volunteers punished the retailer by leaving. "The effect was not symmetric," Meyer says. "What mattered more was the negative shock ... When suddenly they went in and they saw that the price of coffee which they had to buy was suddenly five times the price they normally pay, they would buy one can of coffee they had to have and then at that point walk away and not buy other goods including goods that were on sale."

In another experiment with a trip planning simulation, students were asked to make reservations with an online discount broker. Meyer and his colleagues found that a complimentary upgrade to a better quality hotel room boosted spending in other unrelated purchases, such as a guidebook to their destination or t-shirts for the trip.

Meyer explains that there are three dominant theories about what's driving these behaviors. One is "mental accounting," which says that shopping decisions are based on the amount of money we perceive that we have at the time of making a purchase -- basically budgeting in our minds. Another is the "generalized affect" theory, which states that environmental factors, like the store's decor, music or crowds, can affect your mood, which in turn affects how easy it is for you to shop. The third theory, called "attribution," is that consumers react to subconscious and irrational feelings that cause us to treat the store like a fellow person. The researchers designed these controlled-condition games to figure out the psychological cause for these spillover effects.

Despite the sterile, music-free shopping environment in experiment one and limited monetary fluctuations for experiment two (an upgrade in hotel quality did not change the price of the hotel reservation), the researchers continued to observe a spillover effect, which adds evidence for the attribution theory.

"One of the most fundamental instincts that we have in having exchange relationships with other people is, if you do a good thing for me, I should do a good thing for you," he says. "And if it's the case that you do something bad to me I should do something bad to try to get back at you ... If you and I had a barter relationship and I'm trading crops for cows, and if one day I feel like you've cheated me on the cows, then I'm probably not going to return the favor when we exchange crops." He says that's inappropriate because transaction relationships at your local mall are much more complex than barter-and-trade relationships of the past.

Meyer saw these emotions getting in the way of rational shopping decisions in his virtual grocery store. "[Volunteers] were mad at the store when the prices went up. And do keep in mind that this was a computer store, so there's nothing to get mad at, but nevertheless people acted as if this was the case," he says. "By being exposed to these biases, we're not as smart a shopper as we should be."

Meyer admits that sometimes he's not the smartest shopper either. But he tries to make a plan ahead of time and stick to it while he's shopping, which can help counter spillover effect. While he concedes that this might take some of the fun out of shopping, he stresses that some people cannot afford to splurge on unnecessary items, and they should know what factors are at work. In the meantime, Meyer wrangles with these shopping forces in his own family, "We have the good fortune of at home having a couple of teenagers, and for them, these emotions [while shopping] are much more extreme than for me, and they're probably not aware of them."

Janakiraman, Meyer, and Morales published their work in the December 2006 Journal of Consumer Research. Their study was funded by the University of Pennsylvania, University of Arizona, and the University of Southern California.

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