Black Friday May Make You Poorer

Listen up.  Even if you're one of those people who get up before dawn to go stand in line, then shove your way through the crowd, on Black Friday, you're probably going to spend more than you intend, anyway, according to newswise.com.

The web site reports that new research suggests some types of discounts encourage shoppers to overspend.

That's why I usually stay home on Black Friday.  I don't need any more reasons to spend more!

Researchers explored promotional credit deals and how they can lead to fallacious thinking in consumers. “Let’s say you went to Ann Taylor Loft, you bought a sweater for $50 and received $10 of Loft credit to spend in the future," says University of Delaware’s Andong Cheng. "This purchase feels like it’s only $40 instead of $50. And then later, you spend the $10 on another shirt and feel like the shirt is free, because you’ve only been spending that merchandise credit instead of more money out of your pocket.”

In this scenario, even though you have only received $10 in rewards, you feel as though you have received $20. This also doesn’t account for the possibility that you won’t fully use that promotional credit.

Sound like you?  It sure sounds like me.  I was never any good at math!

“People spend it partially, they forget about it, they lose it,” Cheng said of gift cards. “So the promotional credit is interesting because when you make that purchase, you’re assuming very optimistically that you’re going to spend it in the future.”

This is why, Cheng explains, consumers should try to remember that gift cards “should be treated like cash” in terms of their mental value.

One of the studies done by the group also found that promotional credits could influence shoppers’ behavior and choices. In the study, the team worked with an ice cream company to offer some consumers $3 discounts and others $3 promotional credits.

Consumers with credit “were more likely to go back and buy more ice cream because they felt the need to use that credit in the future, to reap their reward,” Cheng notes.

This may compel consumers to make unneeded purchases, she explained, because, “They feel the need or the desire to go back to the same retailer, whereas they may not go back to the same retailer otherwise.”

So how can holiday shoppers avoid falling into these overspending patterns?

Cheng advises consumers to consider the phenomenon of double mental discounting when they are offered promotional credit, and to only apply the discount to one purchase.

“So for example, when you receive promotional credit, don’t think of the initial purchase as cheaper,” she explains. “Only take that money gained into account once you’re actually able to use the promotional credit.

“The idea is to get consumers to realize that this could be a fallacy that’s happening because one single promotion feels strongly associated with multiple purchases. So if they’re able to successfully decouple or disentangle it cognitively from one of the multiple purchases, then the fallacy should go away.”