Be a Smarter Shopper
August 1, 2014
Today marks the midpoint of the state of Tennessee’s annual sales tax holiday, three days each year intended to give families a price break on back-to-school shopping items such as clothes, school supplies and computers. If these are items you’re going to buy anyway, it’s a smart time to make those purchases. If you want to be smarter shopper year-round, consider these things while you’re shopping.
Brand delusions
Companies spend a lot of money advertising and packaging their “name brand” products, costs that must be recouped in the sales price. Generic and house-brand products many times are quite similar or even identical but have much lower marketing costs, making them cheaper.
Promotion is potent stuff, though, and consumers often turn up their noses at generics. But the smartest shoppers don’t, say economists from the University of Chicago and the Netherlands’ Tilburg University. According to their research paper “Do Pharmacists Buy Bayer? Informed Shoppers and the Brand Premium,” published last month, college-educated shoppers are less likely than the overall public to fall for more expensive brand-name products. And true experts — like pharmacists, doctors and chefs — are the least likely of all to buy brand-name products pertaining to their fields: drugs and groceries. The economists contend that Americans waste about $44 billion a year on name brands that have generic equivalents.
Generics are often just as good, or better, in terms of taste, nutrition, ingredients and effectiveness. Scrutinize the label, do some research and test the product yourself.
Make a list and check it twice
Know exactly what you need when you go shopping and stick to it, because scheming merchants and your own frail human nature are conspiring to force you into bad decisions. It’s true: Retailers have purchasing down to a science (behavioral economics and social psychology, namely): They know precisely how to price merchandise, where to place it on the shelves and even how to flow traffic through the store to optimize your spending.
As William Poundstone writes in “Priceless: The Myth of Fair Value,” the human brain evolved for quick decision-making and “constructs desires and beliefs on the fly,” leaving us vulnerable to today’s marketing ploys. If a fancy bread maker doesn’t sell well at $279, then introduce a fancier version for $429, and the cheaper one will take off (Williams Sonoma did exactly this, according to the book).
Moreover, if you shop till you drop, your willpower will, too. This effect in psychology is known as “decision fatigue.” After weighing so many shopping decisions, our reservoir of mental energy for exerting self-control is depleted. We literally can’t resist temptation anymore — which is why stores put inexpensive candy and magazines at the cash registers.
Remember your net cost
We can become so fixated on sales and bargains that we forget the gas, shipping fees and time we’ve expended. As Duke University psychology and behavioral economics professor Dan Ariely points out in his book “Predictably Irrational: The Hidden Forces That Shape Our Decisions,” we lose our heads when we see the word “free,” which is why we’ll add another item to our Amazon cart that costs more than regular shipping in order to earn free shipping.
Ask yourself practical questions
I know, I know. Practical just isn’t much fun, is it? But blowing your budget and buyer’s remorse aren’t much fun, either. So step back from that great deal and ask yourself:
- Am I buying this just because it’s on sale?
- Am I buying this just because it’s a brand name?
- Is it more of a want than a legitimate need?
- Is it a high-maintenance item that will cost you more money in the future?
- Are you working hard to rationalize the purchase?
If you’ve answered yes to any of these questions, consider walking away.
All of us have finite resources. Sticking to a budget and shopping smarter is one way we can conserve those finite resources. Although it may sound trite or silly, it’s not: A penny saved during shopping (or simply not spent!) is indeed a penny earned. Over the course of your life, it adds up.
Phoebe Venable, chartered financial analyst, is president and chief operating officer of CapWealth Advisors LLC. Her column appears each Saturday in The Tennessean.
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