A fool and his money…

I’ve been reading a galley of the upcoming book Cheap by Ellen Ruppel Shell, and it’s got me thinking about marketing practices a lot. I don’t agree with all of Shell’s conclusions – she seems to think that discounting and production efficiency is a zero-sum game, for example. But she definitely has keen insight into the psychology of discounting, building on studies of irrational behavior by people like Dan Ariely (whose book I also enjoyed).

At first I didn’t really believe what she was saying about how even savvy consumers are easily duped by the appeal of Bargain Prices, even when it’s not in our best interest. Merchants, she says, override our logical behavior at times of emotional stress, appealing to our irrational desires with discounts from arbitrary reference prices, a sense of urgency, and a feeling of participation in something special. Well, obviously that’s true for some people, but I’m no dummy, and I’m resistant to that kind of trick. Right?

Well, last week, while Bookdwarf was in the hospital having her appendix removed, I got an email from my local wine merchant announcing that Facebook fans would get an exclusive early peek at their best value ever, a heavy discount on a stellar bottle of wine that would be available for one day only. It turned out to be a good value indeed: A $10 bottle on sale for $4 if you bought a case. I did buy a case. Maybe because I was under emotional stress, but mostly because I thought I was saving a bundle, I ordered an extra $100 worth of other stuff I didn’t need. After all, it was also on sale, just not as much. The discounted wine turned out to be pretty good, but I was still unsettled by how effectively the direct-marketing specials plucked at my wallet-strings.

I got another email today that illustrates just how timely Shell’s book is, this one from a market research group, analyzing the ways that different groups of people have responded to the recession. One label in particular caught my eye: “The Ostrich behavior is self-explanatory and irrational. At 9% of the population, they feel unaffected by the financial chill are spending as normally. Some of them are well paid enough to get away with this, but the bulk of this group are in denial… This group is a double edged sword for businesses. In the short term, they’re great for the bottom line, but in the long run, many of them may be forced to raise their heads and lower their spending as the crisis catches up with them.”

Good luck, folks. They’re out to get you.