Retail

The Shopper’s Brain On Bargains

Everyone loves a bargain, and there is something uniquely satisfying about not only getting whatever product one is after, but also getting it for a really, really low price. This is why so many of us have, usually in defending a purchase that someone questioned, uttered the following phrase at least once in our lives:

“It’s not what I spent, it’s what I saved.”

And while bargain retailers charge vanishingly small amounts for their goods, all of those little sales add up to some pretty amazingly large figures for bargain-hunting consumers.

“We can’t remember [the] last time we left without spending $100!” Jen Coleman and Laura Wiertzema, the duo behind popular Target fan account @targetdoesitagain, wrote to Refinery29 via email. “It’s almost like Target knows we won’t feel bad adding some cute dishes or a dollar spot item for $2.99. You leave feeling happy because you got some new bowls or a new pair of shoes and you didn’t break the bank. It’s instant gratification!”

And it’s instant gratification that has a specific name – the Target effect – defined in the urban dictionary as the experience of going into a story for one item, being dazzled by the deals and emerging with much more than planned.

The brain on bargains, as it turns out, is a singular thing, no matter where one looks in the world. So who gets bargains on the brain, how do they shop, why do they do it – and what are the effects?

Everyone (Everywhere) Loves a Bargain

Earlier this week, Pinduoduo, a Tencent-backed Chinese firm founded by a former Google engineer and sometimes dubbed the “Groupon of China,” launched its initial public offering and saw its stock price surge 36 percent on the first day of trading. All in, the firm raised $1.6 billion through a U.S. IPO this week, bringing the three-year-old eCommerce firm’s valuation to $32.4 billion. The firm claims to have 343.3 million active buyers in Q2, and 195 million active monthly users.

The secret to Pinduoduo’s success is two-fold. Part of it is a savvy social media-based distribution model through WeChat. And part of it is price: Pinduoduo also deeply discounts its items – by up to 90 percent, according to some counts. And there are even further price reductions for friend and family groups that order in bulk.

Chinese consumers have a reputation for loving luxury that is well-earned, The New York Times reports – but they also really love a bargain, and Pinduoduo’s explosive growth in the eCommerce scene proves it.

And there is no small amount of the Target effect happening on the site: Li Tianqiang, a Foshan food truck operator, spoke about the times over the last several years that he has spent $1,800 (two months’ salary) buying items like an inflatable paddle boat, a fishing bag and a cherry-red motorized car for his young daughter to drive around.

The goods aren’t always … well, good. The toys, he noted, often have defects, and some items are basically unusable. But he has few regrets, because for prices so low, he can only get so mad.

And while it is easy to shake one’s head at the Pinduoduo shoppers at the other end of the world – who, according to The Times, tend to skew older and less internet-savvy than their web shopping peers in China’s first-line cities – the siren song of the bargain cries out to people worldwide.

The “euphoria over a good bargain,” Refinery29 noted, is much of what drives consumers all over the world to “lose our chill on Amazon Prime Day” and give in to the urge to buy a smart speaker because it’s on sale for $100 off, “even if you weren’t necessarily in the market for … a new set of speakers in the first place.”

It’s what is driving the discount chain Five Below to open another 128 stores in 2018 (including one on the most expensive street in Manhattan), on top of the 600 they already have and on the way to the 2,500 they aim to open in total in the United States. Five Below’s gimmick is selling everything on their shelves for $1-$5 – and soon, it will count among its neighbors Bergdorf Goodman, Harry Winston and Tiffany & Co. on New York City’s Fifth Avenue.

“This is a unique opportunity for us to establish a presence in one of the world’s most iconic and popular shopping destinations and introduce new customers to the Five Below brand,” CEO Joel Anderson told CNBC.

It’s why TJX has seen its same-store sales increase consistently over the last four years, even as other brick-and-mortar retailers have struggled – and managed to grow its market penetrations among younger millennial consumers.

It’s also why the first item ever sold on eBay was a broken laser pointer. The Canadian who bought it was disappointed it was broken, but ultimately stands by the purchase for its historical significance, and because he didn’t pay that much for the item. And while these days, eBay is working hard to rebrand itself as an eCommerce marketplace for new items and rare collectables, for its first decade or so, the site was known for two things: auctions and for being the internet’s best hit-or-miss yard sale.

It’s why Jen Coleman and Laura Wiertzema can’t seem to get out of Target without spending $100.

No matter who one is, or where they shop, the good deals hold a very special power.

But Why?

It seems that at some point, common sense should intervene and consumers should realize that it is not a good savings if they are buying something they weren’t in the market for – because even a discounted item costs more than the zero dollars that buying nothing costs.

But that, according to Kit Yarrow, PhD, a consumer psychologist and professor of psychology and marketing at Golden Gate University, is not actually how the human mind works.

“What you’re really hunting for is the thrill of a bargain, which is when I think a lot of consumers make mistakes. For people, maybe they don’t even have something in mind, they’re just craving that feeling of being a successful competitive force shopper,” Dr. Yarrow told Refinery29. “In other words, they want the thrill of feeling like they scored a big victory.”

University of Auckland Business School Associate Professor Karen Fernandez noted that a lot of this is also wired to evolutionary hunter-gatherer behavior in humans that is simply hard to knock off. “People want novelty. People like the fact they can hunt and find a bargain [that] maybe somebody else hasn’t found.”

And, Dr. Yarrow noted, retailers know that – and they know how to turn up those competitive feelings in shoppers by limiting supply and creating a time clock. Customers aren’t rewarded merely by getting the product at a good price, she noted – they are additionally pushed by the desire to win the commerce race.

“There’s a physiological response when we feel like we’ve won something, and I think people really look for that and want that, and Amazon Prime Day is just another day of the year when people feel like, ‘Oh, I can get that thrill of winning, of getting something for less,'” Dr. Yarrow said. “When you do score something, it feels great, so you have this burst in dopamine, and people want that feeling again, and it causes a lot of shopping errors.”

Errors, notably, that can be seen via a brain scan.

Dr. Dimitri Tsivrikos told the BBC that when one looks at the brains of consumers excited by a bargain, it becomes clear that considering savings makes it harder for consumers to determine whether or not they are actually getting a good deal on the item, independent of the sale price. Bargain hunting, he explained, creates dopamine rushes in consumers, as they feel an increased sense of control of the transaction – and retailers know how to nudge along that “winning feeling.”

So, what can a consumer do?

The experts note that moderation is the key. There is nothing wrong with bargain shopping, and there is such a thing as getting a good deal – but only if the consumer is getting a good price on an item she actually wants.

And for those consumers who perhaps get too much of a rush from saving, they may end up spending far more than they ever intended.

As paradoxical as it may sound, the experts recommend staying away from the bargain bin entirely, because even saving money can become an expensive habit if it gets out of hand.

——————————–

Latest Insights: 

Our data and analytics team has developed a number of creative methodologies and frameworks that measure and benchmark the innovation that’s reshaping the payments and commerce ecosystem. The July 2019 edition of the FI Innovation Readiness Playbook examines how the innovation playing field is leveling as small FIs implement bolder strategies and larger banks adopt more measured approaches.

TRENDING RIGHT NOW

To Top