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Thursday, February 22nd, 2024

Why we spend and what makes us do it


VANCOUVER — The Globe and Mail

why we spendThere’s the Prada handbag, a moon-shaped canvas tote with leather accents and a shiny, silver buckle. There’s the gas-powered scooter, a high-gloss, crimson beauty nicknamed “Big Red.” And there’s the scuba gear, complete with mask and flippers.

There are also the justifications that accompanied each of Sara Chung’s retail indulgences – to replace a stolen purse, to buzz around quickly during the summer, because she had just received her scuba certification and planned on diving more – but the Richmond, B.C., resident doesn’t really need them.

She is a shopper – shameless and happy.

“There’s this scene in Confessions of a Shopaholic when [the main character] walks by the mannequins and they’re offering her things. That’s basically what it’s like,” said the 28-year-old. “It’s like, ‘Sara, come to me. Buy me.’”

If only everyone were as carefree in their spending, a retailer might wish. Instead, as merchandisers transition from summer sales to back-to-school and fall shopping, they must do more than merely advertise their wares. They must think strategically when asking: What makes people spend?

Technological advances and a changing economy have led to a shift in consumer habits, says Doug Stephens, president of Toronto-based Retail Prophet Consulting.

Whereas most shoppers used to settle on purchases by striking a balance between price and convenience, shoppers today tend toward either end of the spectrum, Mr. Stephens has observed.

“What we’re seeing is that the marketplace is bifurcating into two very distinct sort of propositions, regardless of the category of merchandise or service,” Mr. Stephens said.

Consumers, Mr. Stephens argues, now spend their money on either “super high-fidelity experiences” – that is, exclusive or limited products or services and concierge-level service – or “super high-convenience experiences.”

He cites high-end department store Holt Renfrew as an example of the former; online retailer Amazon as the latter.

“The retailers that are in real danger are the retailers who can call themselves neither,” he said.

For retailers without such an identity, the struggle to reposition themselves can lead to risky strategies. For instance, JCPenney miscalculated shoppers’ psychology when it recently replaced its beloved coupons and regular sales with everyday low prices. Despite broad price reductions, confused consumers shopped elsewhere, and sales reportedly dropped 20 per cent at the U.S. mid-price department store chain.

Steven Kates, an associate professor at Simon Fraser University’s Beedie School of Business in Metro Vancouver, says the failure illustrates what happens when a brand deviates from its identity. “You can’t necessarily run a department store like you would a Walmart,” he said. “People tend to expect sales [at department stores], so everyday low pricing doesn’t work for everybody.”

Canada’s The Bay department store is in the midst of a similar identity crisis as it works to evolve the brand, said Mr. Stephens. “On one hand, [chief executive officer] Bonnie Brooks is talking about the importance of, in her own words, ‘swankifying’ the store and portraying The Bay as an upscale fashion purveyor,” he said. “Meanwhile, when consumers arrive at the store, the strategy appears to be hinged almost completely to discounting.”

Vancouver resident Dan Udey highlights how building a clear brand identity can help build long-term faithfulness and encourage spending.

Mr. Udey, who grew up with Apple products and has been a Mac user for more than 20 years, is unabashed in his loyalty for the powerhouse brand, whose product launches have become events.

“I get really excited when there’s a new Apple product, because I want to see what’s new, and what’s coming, what the future of things are,” said the 30-year-old.

Mr. Stephens points out such an emotional connection is common with “super high-fidelity experiences.” Even the shopping-happy Ms. Chung gravitates mostly to exclusive products.

In the critically acclaimed book, Influence: The Psychology of Persuasion, the author and social psychologist Robert B. Cialdini, outlines six key principles of persuasion – reciprocation, commitment and consistency, social proof, liking, authority and scarcity.

In a chapter on “weapons of influence,” Mr. Cialdini recalls a store owner instructing an employee to slash by half the price of turquoise jewellery that wasn’t selling. Misunderstanding the owner, the employee doubled the price of the pieces – only to have them sell out.

The higher prices, Mr. Cialdini concluded, had triggered in customers an automatic response of equating expensive with good.

Elsewhere, Mr. Cialdini notes how the scarcity principle influences an item’s perceived worth and triggers in consumers a fear of potential loss. As a result, they are more likely to purchase items if they seem to be rare, or only available for a limited time. Retailers play on this with tactics that suggest sales are on for a limited time or products may sell out, which may or may not be true.

While such strategies can often be effective in the short-term, Mr. Stephens says they only go so far.

“Fundamentally, you have to have a distinct competitive advantage, and it has to be real,” he said. “Otherwise, you’ll get found out eventually.”

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