As I wrote in a recent blog post, businesses are increasingly using technology and very detailed information about customers’ buying behavior, known as micro data, to change prices their frequently. For companies, this results in increased revenues and higher profits. But it’s bad news for consumers if they continue to stick with the status quo.
More often than not, they end up paying more money than before for the same products. And good deals have virtually disappeared for in-demand products or services. So what should shoppers do? How can they still shop smartly?
The answer to smart shopping in a world where prices are changing constantly lies in making two important changes to buying behavior: (1) Rely less on memory of past prices, and on price information found at the point of purchase; and (2) Rely more on price trackers to learn historical price ranges, compare prices at different retailers, and set price alerts.
In other words, avoid outmoded decision patterns and fight technology with technology. Let’s explore these ideas in more detail.
Most of us have the common sense idea that remembering what we paid last time for an item will help us make a good buying decision this time around. In fact, consumer psychologists have shown that such “memory-resident” prices are one of two price-related factors that strongly influence purchase decisions. (The other is the “external reference price” such as price labels that consumers encounter at the purchase location. I have written about these reference prices in another blog post).
In a volatile price environment, however, relying on memory may not be such a good idea. When they are changing frequently, past prices can be outliers either way --- they can be either too high or too low compared with the current price. Or some environmental factor may simply make that past price totally irrelevant. Just consider the wild see-sawing of the price of 2016’s hottest toy, Hatchimals. Fueled by demand, prices of these $60 toys swung as high as $500 before falling to earth again during the weeks leading up to Christmas.
A recent study by consumer psychologists Ellie Kyung and Manoj Thomas gives even more reason to avoid relying on memory too much. These researchers found that trying to recall recent prices actually hurt consumer decisions. In the authors’ own words:
“…memory-based price comparisons are less accurate when consumers first attempt to recall the past price versus when they do not try to do so. Attempting—and failing at—explicit price recall focuses attention on metacognitive experience, resulting in a feeling-of-not knowing, which then blocks the implicit memory that people could otherwise use to make accurate price comparisons.”
At the point where the purchase is made in the store or online, marketers have gotten smart at putting pricing labels and signs that will influence consumers’ buying decisions. This is because research shows shoppers are very sensitive to such pricing cues. They use cues to judge whether the price is a good one, and making a buying decision. Just putting a “Sale” sign next to a price in a store, for example, can increase sales by more than 50% (even without making any changes to the price). Similarly, consumers see prices that end in “9” as indicators of a deal, and shop more freely.
Now what happens when prices are changing frequently? The ability to discern whether the current price is reasonable or whether one should wait for it to change is lower, and so shoppers rely on any other signs that will give them a clue. The result is that pricing cues encountered at the point of purchase like sale signs and prices ending in “9” are even more influential. Consumers should actively put less weight on encountered prices and surrounding cues in making buying decisions.
So far I have discussed what shoppers should not do. Now let’s consider what they should do instead.
The main reason that companies are able to change prices constantly is that they have automated the process. Instead of humans, they use computer algorithms to decide when to change prices and by how much. For instance, a pricing algorithm may say something like this: “If my main competitor raises price by 5%, match that price increase.” So it is not surprising that Amazon can change its prices 2.5 million times a day!
Fortunately, the same sort of technology that is available to companies is also available to shoppers. And using it doesn’t cost anything (except for a bit of time and effort). Technology allows shoppers to track prices of any item, to understand historical prices– what the price range has been, how often price has changed, and even what to expect in the future.
Alternatively, a price tracker like Slickdeals allows shoppers to track prices for any product across a bunch of different retailers. With this type of tracker, shoppers can compare prices across retailers and decide not only when to buy, but from which retailer to buy the item from. CNET has a list of 20 price trackers that, although dated, still includes many of the most popular ones.
Price trackers provide historical pricing information for the product so that the shopper can quickly understand the range of prices at any retailer, how often they have changed, and if there are any trends in the changes. Even more useful is the fact that the shopper can set an alert for a specific (hopefully, low) price level that they are willing to pay for the item. As soon as the retailer lowers the price to that set level, the shopper gets a text or email, so they can pull the trigger. Talk about fighting technology with technology!
A third great use of price trackers is to track prices at other retailers after buying something to avail of the retailer’s price-matching guarantee. The video below describes this nicely.
Have you ever played the Whac-A-Mole arcade game? In it, five moles pop up randomly from their holes. To score points, you have to whack them with a mallet before they disappear. In today’s world of dynamic, constantly changing prices, low prices are like moles shoppers must whack within a short time window. The only reasonable way to whack this mole is to discard old-fashioned, habit-based methods of using price to make shopping decisions, and to use technology instead. Price trackers are the best mallet smart shoppers have today to whack the low price mole.