Creatures of habit

From The Financial Post, comes an interesting article titled: Consumers need to compare before they spend

Your research suggests that when selling a new product, companies should always compare the product to something the customer already has familiarity with, even if the product is so novel as to be unique in its market.

First, without such comparison, the “space” for a new product in people’s minds is ill-defined, making it very hard for people to figure out how to place a value on something.

We just don’t know how to value things in isolation.

The second thing is that we are mainly creatures of habit, and decisions are actually quite tough.

How many times a day do we really want to contemplate buying something by analyzing everything, thinking about the opportunity cost and so on?

Consequently, we rely on our past decisions, including comparisons to other products.

I find this to be an interesting topic because he also cites an example from the book “The Paradox of Choice”, where I wrote a post asking if we had too much choice, and so much that we get overwhelmed.

He talks about people buying 30% of the time when given 6 jars of jams as a choice, versus 3% of the time when they had more choice — 24 jars of jam.

It’s probably why Apple is doing so well.

They are exceptionally gifted at making things simple and elegant. Design is their strong suit.

They stick to a couple of products, well marketed and documented within each category. It’s very clear on the Apple site that they have at least one, but a maximum of 3 products marketed to each category.

  • The Shuffle = For those on the go, something cheaper, small and cute
  • The Nano = For those who want something a bit heftier, but still small and cute
  • The iPod = Full out all around multimedia entertainment center, the original.
  • The iPod Touch = For those who want the sexiness of an iPhone without the bill

I could name their entire lineup right there. And each time a new Shuffle or iPod comes out, they replace the older model, or create a distinctive marketing blurb that really separates the two models in that same category or class.

And if you charge more money for a product, but then offer a discount, people think they are getting a deal.

Grocery stores do this all of the time. Did you know, they mark up prices by about 3 – 5% most of the time, JUST SO they can discount it and let people think they’re getting a deal?

Grocery stores have tried to price items fairly at what they wanted — $2.50/large tub of yoghurt for example. But these tubs would sit on the shelf until they were almost bad. Then they noticed that they SOLD OUT when they discounted it to bring in the new batches because people kept waiting for the tub of yoghurts to go on sale before buying it.

So now, they just mark up everything by a bit, and discount it to make us feel great about scoring a deal, selling it at the price they already wanted to sell at anyway.

We feel need to make comparisons with what they have already tried or are familiar with in their life.

This is nothing new, but it bears repeating, because the price is not always indicative of a product’s value. The price is just a part of the product, but the real value of the product comes from you. How you are going to use it, how much you are going to value it as a consumer, and how much you would be willing to pay.

Tivo when it first came out for example, could have been priced at $200 or $1000, the article said.

It depends on what you compared it to, because it could be considered a computer, or a fancier VCR. Who would purchase more? At either price point?

As a consumer, if I really watched a ton of TV, hated commercials, was always busy and never had time to watch my shows until an odd hour in the morning like 6 a.m. before I started my day, I’d value Tivo much higher than if I was always around to be able to sit and watch TV.

As FB, in real life.. I wouldn’t even pay a penny for Tivo because I don’t see a value for it in my life, as I don’t watch cable TV and my shows are all available online for the most part.

It’s all a matter of what you decide the value is to you.

Maybe that’s what we should do as consumers from now on.

Decide objectively what the product would mean to you and what value it is going to add to your life, and then put a price tag on it; rather than comparing the purchase to what other people have or what you already own.

After you come up with a price of what you would pay (much like coming up with a budget when you go shopping for new work clothes), you stick to the budget, and/or decide if you are willing to pay 30% more than originally expected to get exactly what you want.

What do you think?

About the Author

Just a girl trying to find a balance between being a Shopaholic and a Saver. I cleared $60,000 in 18 months earning $65,000 gross/year. Now I am self-employed, and you can read more about my story here, or visit my other blog: The Everyday Minimalist.