I recently spoke with an economist who asked me if I was still writing personal finance columns. When I replied that I was, he recommended that I write about consumers continuously buying things they do not need. He was so passionate about this topic that he has a picture of someone on his desk who was lured into buying many things they did not need.
One of the reasons why people habitually purchase items they do not need, is that they are led to believe they are getting “a deal.” However, just because something is marketed as a deal does not mean that it is one.
For example, I recently viewed a television commercial whose pitchman said something to the effect of, “And if you call within the next 10 minutes, we will throw in another product absolutely free. This is a $40 value, but you have to call now.”
The intention of pitches like this is to entice “impulse buying,” which is an unplanned, spur-of-the-moment purchase. The impulse “nudge” in this commercial was the offer of a $40 value within a fixed amount of time. But what exactly is “a $40 value?”
From an economic perspective, if something is a $40 value that generally means you can relatively quickly sell it at a price at least $40 higher than you paid for it. However, this likely is not what the pitchman meant.
To understand why, ask yourself why someone would pay you $40 for an item when they could call the same phone number that you did and purchase two items for $40 within the next few minutes. At least two aspects of this offer seem important. One, fixed offer timeframes such as the 10 minute one mentioned in this commercial, rarely, if ever, hold firm. Two, just because it seems he is, it is not necessarily the case that the pitchman was lying.
Value is subjective, which means it can be defined in various ways. Therefore, people can—and often do—define “value” differently. One practical implication of this is that pitchmen typically define value far more broadly than more conservative people do.
It is natural to want a deal. Sales people know this and construct their pitches accordingly. In other words, they profile both their product/service and its price in the most favorable light possible. This is what they are paid to do. However, that does not mean you have to buy their product/service.
Here are some things to consider when evaluating sales pitches:
First, avoid impulse purchases. Simply waiting 24 hours (or longer) before you buy something that attracts you on impulse will help to prevent unwise purchases.
If, after waiting 24 hours or so, you decide you would like to make a purchase, then you should validate all claims of value very carefully. In other words, determine exactly how a salesperson is defining value, and then determine if that definition applies to you.
Next, determine how you are going to realize the value. For example, in the above commercial the value proposition is two-for-the-price-of-one. Before accepting such an offer, you should determine what you are going to do with the second item: Are you going to sell it or give it away as a gift? If neither of these options is applicable to you, perhaps the seller will negotiate on price so that instead of getting two-for-the-price-one, you can buy one product for half price?
If, after following these suggestions, you doubt whether a sales pitch creates value for you, then you should not purchase anything. You can always buy the product, or one of its substitutes, later if a true deal emerges.
Read “9 Reasons Buying Stuff Won’t Make You Happy”: Act Now