There is a perception that in past two years or so, there has been an increase in sales. Some media outlets are even suggesting that sales are the new norm.
What we can see, though, is that in late 2007, when it looked like the economy might take a nosedive, retailers started to ramp up the frequency of sales and special promotions. All things considered, this was a reasonable response. Because of the concern about the likelihood of a reduction in consumer confidence, and the resultant decline in purchasing. retailers started to use a tried and true stimuli, that was an effective way to get consumers to respond “in the moment”, rather than in a more methodical, and perhaps, rational manner.
It’s unlikely that most retailers fully understand why sales work, but the main reason is based around our need to be efficient when we use our cognitive resources. As I have said many times, we have limited resources to think, and it is in our interests to be as parsimonious as possible when “firing-up” our mind to think about something in any depth.
So, when we see a “sale” sign, there are benefits for us to accept it at face value, rather than thinking about it too much. If it says its on sale, then we assume it must be cheaper than the “normal” price, whatever that is, and it is predominantly an emotional reaction, rather than a rational one.
There is some evidence to suggest that even the word “sale” or “free” sets off the reward centres of our brain, which overpower our ability to think rationally. So when we see a sale, we give more weight to that particular stimuli, and trust that we will be rewarded for responding.
We don’t have the resources, the energy, or even the desire to check every claim that a retailer makes, so we use the “sale” or “bargain” sign, as a proxy or shortcut to help us make a decision. We assume that if the retailer is saying that the product is on sale, then it must be true, and it must be cheaper than it normally is.
What a sale sign does is provide us with a shortcut to help our decision-making. So, if we are willing to be persuaded, that is if we are in the “general” market for the product that is on sale, then a “sale” sign, or a “buy today” sign, or even a “get a free gift” sign, will increase the likelihood that we will buy that product, over and above other products.
The best way to think of it is that it is a gentle, psychological nudge toward a particular product. What is even more effective in “nudging” is to say that the reduction is a reduction upon the sale price. So, that increases the likelihood that we’ll buy the product just that little bit more.
Marketing is about degrees. It’s not a single factor, it’s the accumulation of all sorts of factors, including brands, pricing and availability. So when we something that we want, or that we have thought about purchasing, the “sale” makes it just that little bit easier for us to let down our normal, mostly rational defences.
Because we don’t have the ability to know how much something costs, we accept the original price and the sale price at face value. In the absence of this knowledge, we compare the price of that particular product to products that WE think are similar. So, when it comes to pricing, perception is everything.
Generally speaking, though, the normal retail price is already a lot higher than the wholesale price, and therefore, even if it is on sale, there is still a good margin in there for the retailer.
But even when something is on sale, we may not be getting the best price. I know of clothing stores, for example, that mark up their dresses by around 250 per cent of the price paid by the retailer. Similarly, electrical goods can be marked up by more than 75 per cent of the purchase price paid by the retailer.
So, we should assume that if something is on sale, and there is an opportunity to negotiate, there is the potential for an even bigger saving.
The bottom line is that we don’t always have to respond to our psychological biases. And we don’t have to buy stuff to be happy.