Before beginning your holiday shopping this year, University of Colorado Boulder
Professor Donald Lichtenstein says consumers should take the time to prepare
themselves. Preparation can save them money, steer them away from overspending
and even change their whole thinking about purchasing gifts during the holidays,
he says.
1:31 “One mistake many consumers make is that they rely on price or brand
names as an indicator of quality, they’ll say you get what you pay for, the higher the
price the higher the quality. Many consumers follow that and will go out and buy a
higher priced item because they believe they are getting a higher quality item.
Nothing can be further from the truth, in terms of a generalization.” 1:55
1:56 “There are some product categories when you pay a higher price you do get
higher quality. And there are others ones where price and quality just don’t relate
to each other. It’s random, the relationship. You’re just as likely to get a high
quality item by paying a low price as a high price.” 2:14
2:17 “Then you’ve got a third category of goods where the relationship between
price and quality is actually negative, meaning that….as you pay a higher price you
get worse quality.”
2:28 “So the notion of consumers going into the marketplace without independent
quality information, that’s a big mistake.” 2:38
2:39 “How do you get that information? Well you need to find an unbiased source,
somebody who doesn’t have anything to gain by what you decide. Not a sales
person. You may have a very good friend who has a high degree of expertise in a
category. Personally I rely on consumer reports. This is not an add for Consumer
Reports, they’re not paying me or anything like that, but that’s what I do. I go to
Consumer Reports and look independently of price what the quality rates are. It has
served me very well over the years. 3:12
3:13 What research shows is that not only do consumers believe that higher price
means higher quality, but they believe it more for durable goods than for nondurable goods. And durable goods tend to cost more. And secondly, within durable
goods, the higher the price level for the product category, the more they believe
higher price means higher quality. So for example, if I’m going to buy a washing
machine or a drying machine that costs one or two thousand dollars, they’ll believe
that higher price means higher quality more in that product category than say a
100 to 200 dollar camera range. 3:58
4:02 “It sets the consumer up for larger financial loss because the belief is stronger
at the higher price level and it’s equally untrue at the higher price level as it is for
the bottom price levels. So A number one, do your research on quality independent
of price. Don’t rely on brand name. Don’t rely on price exclusively.” 4:27
4:28 The second thing of course is price search. (432) There is no substitute for
going online and spending a little bit of time, when you’ve decided what it is you’re
looking for…using shopping bots, shopping.com, bisrate.com and also visiting
particular merchants who you know carry the item and looking at the prices they
charge. You may decide that ‘look these retailers are not local, I want it more
quickly than that. And you may pay 10 or 15 dollars, who knows, more. But at least
it’s an informed choice. You know what you’re doing and why you’re doing it. Prices
for the same item vary tremendously. 5:16
5:18 There’s a lot of research showing that consumers under-engage in price
search. Many of them purchase from the first merchant they go to. Consumers are
pretty lazy, basically. And that will hurt them. 5:29
5:30 What’s another thing consumers can do? In the durable goods category many
stores …..make a huge profit on their product warranties and things of that nature.
Most times they’re really not worth the amount of money they are charging and
what it is the warranty covers and things like that. So scrutinize those things very
carefully and with a high degree of skepticism.
5:51 A final way of saving money, which is kind of a Scrooge comment, but that’s
me, is to really think about the Christmas holidays a little bit more generally than
gift giving.
6:15 Several years ago I got together with friends and we made an
agreement….we get together and spend social time with each other over the
holidays but gift giving….we have what we need and don’t need anything. And the
stress and the financial pressure and all of this stuff of buying gifts is overblown.
7:07 A lot of retailers rely on November and December to make 40 percent of their
revenue throughout the year, so they’re geared up.
7:15 You’ll hear all types of offers….one that comes to mind are the price matching
offers.
7:33 Stores that advertise price matching create the perception among consumers
that they have the lowest prices around because consumers think ‘if they’re willing
to match the price, they must have low prices. And some of them will say they will
match the price plus give you 10 percent of the difference if you find a lower price.
Well, many times those stores actually have higher prices. It’s what we call in
academia a price discrimination tactic, such that consumers don’t engage in prepurchase price research. So the idea is I say I’m going to match the price plus give
you 10 percent of the difference. If it’s a $100 item and somebody else is selling it for
$80, and 10 people come into the store because they believe you’ve got a low price
and they buy it for $100. Maybe one of those 10 people go out and see it at $80 after
the fact, so you give them $20 and 10 percent of the difference is another $2 so it
just cost you $22. But the other nine people you made $20 over your competition.
9:01 I would tell consumers to be very wary of stores that offer price match
guarantees and don’t let your guard down. They may have the lowest price, I’m not
saying they won’t…but verify. Don’t rely on the price matching tactic. And don’t
think ‘Oh I’ll go look after the fact, because consumers don’t do that either. The best
intentions of what consumers are going to do after the fact, a lot of companies make
a lot of money offering rebates that are never sent in.
9:35 Another tactic that goes along with price matching and even outside of price
matching is what is called branded variance.
9:55 Branded variant is when a retailer with a lot of buying power goes to a
manufacturer and says I want this particular item that you’re selling, but I want
you to put a unique model number on it. I want to give it a unique name. for
example if you go to one particular store and they’re selling a particular brand of
mattress and a particular model, and another store may have ordered the same
exact thing and had the company put a different model number on it or a different
name just so A it cuts down on comparison shopping on the front side and B, it
limits the price matching. So that’s another thing that stores will do to cut down on
price search where they don’t want consumers to compare apples to apples across
stores. And secondly to deter having to price match.
Many companies are bringing back layaways programs this year. Lichtenstein says
to be wary of them.
13:07 One of the things about layaway programs is that they cut down on price
search. So once I go to a store and I put the product on layaway…..even if they can
undue the layaway, consumers get mentally locked in to ‘OK, I’ve gotten that taken
care of and they check it off their list. But given that consumers don’t price search
before something is put on layaway and they’ve checked it off their list that’s the
thing that really concerns me.
13:58 Secondly, which is lesser of an issue today, is when you put money away for
an item on layaway, the store gets use of your money for that time. Now the cost of
money is very cheap, but there are certain consumers who are running credit cards
perhaps and have credit card debt and at the same time they may be putting
something on layaway. That wouldn’t make much sense.
14:32 Coupon use….14:37
Coupon use or any kind of sales promotion, rebates,
sales, there are two mechanisms underlying the utility of satisfaction that
consumers get. One is what we call acquisition utility, and it’s a fancy term, but it
just means the need satisfying ability of the product in relation to the price you pay
for it. So if you pay a lesser price, certainly your utility is going to be higher because
you got need satisfying ability for a lesser price. But there’s this other type of utility
that gets us to buy many times and it’s called transaction utility. It’s the consumer
excitement with the deal aspect of the purchase. There are many consumers whose
total utility is dominated by that transaction utility such that they’ll go out and buy
something for the excitement it gives them, but when it comes to the acquisition
part, it may not be something they actually use or need. So it can be a temporary
high but as time goes on those products that you bought with coupons are sitting on
your shelf and you’re not using them, then you have to ask yourself how good of a
deal was it.
16:05 Well I think it’s two major things here. One is vigilance. Vigilance on quality,
vigilance on price, vigilance on what merchants are doing, vigilance on ‘am I
actually going to use that product. A second thing I go back to is during the holiday
season don’t get caught up in the emotional shopping. Don’t think ‘I’ve got to buy
the best gift for this person and how much they’re spending on me, and getting into
this social exchange and feel badly if the gift you bought is not as much as the gift
they bought.”
16:40 The truth of the matter is I think a lot of consumers would be a lot happier if
the gift giving aspect of the holidays was greatly reduced.
Lichtenstein also says consumers need to be aware of advertising geared toward
getting them to spend more, even though it seems like common sense, many people
are drawn to spend more than they can afford by these types of advertising.
18:18 I’ve seen it first hand where occasions, be it birthday parties, weddings,
barmitza, there becomes a social visibility side of not wanting to look cheap and
equating the amount you spend to some matter of love. I’ve seen people go into debt
over these things. And it doesn’t make sense. It’s engrained in our culture, this
equating how much you spend with some aspect of love.
19:52 The advertisers say ‘this Christmas show her you love her with an X, or show
him you love him with an X. And that X probably costs a lot of money. I think you
an show her you love her with a lot less than what the retailers are asking you to
spend.