How Marketers Influence How Much We Spend on Big Purchases

The two-months’-salary for an engagement ring rule shows the power of marketing.

Posted Feb 25, 2019

For any big purchase, whether it is a television, an automobile, or an engagement ring, there are numerous available alternatives. No consumer can consider even a fraction of them meaningfully. They must, of necessity, use simple decision heuristics to drastically pare down the options to a manageable handful. Decision researchers call this process prescreening. The options that survive prescreening become the consumer’s consideration set, which is assessed more carefully.

What is a price threshold?

During prescreening, the most common function of the product’s price is to act as a cut-off or a threshold. It dictates the product’s inclusion or exclusion in the consideration set. For instance, a consumer may decide she wants to “spend no more than $70” to buy a new outfit, or a couple going to a dinner party may say, “we should gift a bottle of wine that costs between $20 and $25” All outfits costing more than $70, and all the wines in the store that are outside the $20-25 range will be rejected from further consideration by these consumers.

Companies know the importance of price thresholds. Through market research, they try to find out what their target consumers’ price thresholds are and price their products accordingly. More interestingly, beyond sitting back and passively learning customers’ thresholds, companies also influence and actively create price thresholds for their customers to use. They influence how much money customers spend on big purchases. In this blog post, let’s consider how companies do this, using the compelling case of De Beers.

Should you buy a diamond engagement ring if you want to propose marriage to your partner?

The ingenious marketing approach used by diamond seller De Beers over the past 80 plus years illustrates how game-changing creating a price threshold can be. The De Beers strategy unfolded in two stages. First, the company introduced the slogan “A Diamond Is Forever” in 1947, now regarded as the best advertising slogan of the 20th century. In it, De Beers characterized a man’s purchase and gifting of a diamond ring when proposing marriage to a woman as a timeless tradition. It reinforced this message repeatedly over the years, until eventually it was widely known and accepted as the conventional behavior expected of every American man. And as cultural norms changed, jewelry companies marketed diamonds in this way just as aggressively to the LGBTQ community (See ad below).

The extraordinary statistics tell the story of just how successful De Beers has turned out to be. In the late 1930s, before De Beers created the slogan and the “engagement = diamond ring” emotional connection in consumers, only about 10% of engagement rings contained diamonds because of the expense involved. Other stones such as sapphires and rubies were equally common. However, by 2000, the number of engagement rings with diamonds had gone up to 80%. In late twentieth-century America, across age, social class, sexual orientation, and geography, most people considered a diamond ring to be synonymous with an engagement ring.

The “A Diamond Is Forever” message, sustained by De Beers over decades through mass media, succeeded in changing what was an atypical and unusual purchase without any social or religious significance into a conventional one that is expected of every individual who wants to propose marriage to their partner.

How much should a diamond engagement ring cost?

The “A Diamond Is Forever” message, while successful, leaves the question of how much the engagement ring should cost unanswered, sowing doubt and confusion. And if we know one thing about consumer decisions, it is that doubt and confusion are bad for action. They serve to delay purchases. For De Beers, providing a concrete and substantial price threshold to the eager fiancé was essential to prevent them from pinching pennies and buying a ring with a small or poorly-cut diamond.

But how to create a universally applicable price threshold? After all, a ridiculously low price for one person would be a completely unaffordable price for another. It wouldn’t make sense to say “A diamond engagement ring should cost at least $X” because $X would be too high for some people and too low for others.

A diamond engagement ring should cost about two months’ salary

This is where the ingenuity behind De Beers’ marketing comes into play. The company designed another inspired marketing message devised in the 1980s that circumvented a specific price point and provided a specific price threshold that applied to everyone, no matter their income. This time the ad showed an attractive just-engaged woman called Jane Smith brandishing her diamond ring. The tag-line read, “2 months’ salary showed the future Mrs. Smith what the future will be like.”

The subtext was that if Mr. Smith proposed with a diamond ring that cost less than two months of his salary, it should plant seeds of doubt in the lady’s mind about the intensity of his love and commitment to her.

What is particularly clever about what we’ll call a "seller-supplied price threshold" is that it is substantial, flexible, and feasible all at once. It’s not one fixed value. Instead, it’s a moving target that is geared to the fiance’s wherewithal. If you are George Clooney, you spend $750,000 for an engagement ring, but if you are a young person in your early twenties working in your first entry-level job and intent on paying off your student loans, you’d spend $1,000-2,000. For both individuals, it’s a substantial amount of money that is dictated by the seller-supplied price threshold. Sales managers would call this price threshold a stretch goal

Couple celebrating engagement/ Bekir Donmez/ Unsplash
Source: Couple celebrating engagement/ Bekir Donmez/ Unsplash

This two-months-salary price threshold for engagement rings supplied to American consumers by De Beers remains firmly entrenched today more than three decades later. In the midst of the emotional turmoil associated with the momentous decision of proposing marriage to a romantic partner and choosing an engagement ring, this price threshold serves as a soothing decision heuristic signaling the ring purchase’s normalcy. Millions of individuals have decided which ring to buy using this rule. According to the 2018 American Wedding Study conducted by Brides magazine, the average price paid for an engagement ring in the United States was $7,829, which works out to just over two months’ salary (after tax) for the median wage earner.

As I see it, the main takeaway is that if you want to consume prudently, you’ve got to ask yourself whether you want to be influenced in this way by price thresholds sellers give you. Do you want marketers to tell you how much you should spend on consequential purchases, or would you rather decide for yourself?