Five Bargains That End in Excessive Spending

This article is part of the new newsletter 'Settling Accounts', where practical advice for day-to-day household economy will be offered.

When buying any product, our minds are swayed by various marketing and sales techniques against which our brains cannot fight. To understand them, it is best to stop, think, and make a purchasing decision that could cost us more than a good chunk of money. Let's discover the most relevant ones.

When you go to buy a pack of popcorn, you may have noticed that three sizes are offered: small, medium, and large. The medium usually costs almost the same as the large. Given the small price difference, have you ever ended up buying the largest and most expensive one? If so, you have fallen victim to a cognitive bias called "the decoy effect." It involves deliberately presenting a third less attractive option (in this case, the medium size), which makes you pay more than you would have rationally. Recent studies reveal that it is not an exclusive marketing strategy but can also be present in hiring, healthcare, and even politics.

Why, when you enter a store or browse ecommerce, do all those prices end in .99 or .95? Why not round them up? "Psychological prices" ending in .99 or .95 are a long-standing tradition. Some point to strategies aimed at devaluing competition. Others say these prices were created to force store employees to open the cash register and give change, rather than simply pocketing the cash. Regardless of their origins, retailers' use of psychological pricing for all kinds of products is quite evident. For example, a study analyzed 1,415 ads from 43 different Sunday newspapers and found that about 50% boasted prices ending in 9 or 5. Assuming retailers do what works, researchers have pondered why this might be and many have settled on what is known as "the left-digit effect."

Analysts refer to this phenomenon as "invisible inflation." Essentially, it involves reducing the amount of product sold to the consumer while maintaining (or even increasing, in some cases) its price. It is a practice that has been going on for decades but has become more systematic and sophisticated in recent years. This practice of deliberately "shrinking" the volume of product sold has become very common during periods of high inflation. Academic research has shown that consumers are very reluctant to accept explicit price increases, but instead tend to passively accept volume, size, or quantity reductions that do not involve a price change even when they are noticeable at first glance.

The term "cheapflation" emerged at the end of the last century to define a practice followed by manufacturers to survive a rampant crisis. It basically involves replacing the materials or ingredients that make up the product with others of lower cost and, therefore, of inferior quality. With the inflation crisis two years ago, a number of manufacturers began to include in their products' ingredients raw materials of much lower value than they usually used. Only the most skilled customers in analyzing those ingredients are aware of this reality, which makes us believe that prices have dropped.

We are surrounded by bargains, but are they really? Bargains exert a total magnetic power between the consumer and their payment card. When this term appears in any promotion, or a similar one, the customer usually rushes to buy it, believing that they are outsmarting the company, when in reality it is the opposite. It is the business that has managed to capture our attention to acquire a product that we possibly did not even intend to buy. The best technique to avoid falling into this bargain abyss is to ask yourself: Do I really need this product? If the answer is "no," no matter how much of a bargain it seems, it is better to leave it on the shelf without purchasing it.