Float Former Poor Up Over a Sunk Cost Fallacy

Being raised poor affects an adult’s consumer habits in the face of uncertainty. In some cases, the behaviors are exactly what we’d expect: Such adults are more likely to stockpile items if possible, since they fear deprivation. The long-term poor often will give promotional discounts extra attention.
     In other cases, low childhood socioeconomic status exaggerates trends which are seen in all adults: For instance, when the security of a consumer of any age is threatened, their consumption habits move toward the repetitive. But this is especially true if the adult consumer was raised poor.
     In still other cases, the results may seem surprising: Individuals who have grown up in resource-scarce families are less interested as adults in health care insurance than are individuals who grew up with ample money. The researchers’ explanation is that people raised poor are accustomed to living with risk.
     Studies at University of Central Arkansas, Auckland University of Technology, Peking University, and Florida International University add to this list a propensity for the sunk cost fallacy, which refers to staying the course even when the course is unpromising. Here, the researchers’ explanation is that, on average, people with a history of low socioeconomic status consider loss of prior investments to be more wasteful than do their counterparts raised wealthy.
     The sunk cost fallacy is more common with group decision making. So are these two:
     Planning fallacy: Groups are worse than individuals in underestimating the time, money, and staff projects will take.
     Framing effects: Group members come to depend on each other to do the critical thinking, meaning that the critical thinking is inadequate. As a result, the manner in which the facts are framed makes too much of a difference. A group will be more likely to agree to a change if told it has a 90% chance of success than if told it has a 10% chance of failure.
     You’ll never want to discriminate against financially-strained shoppers or in other ways make conclusive judgments about their shopping habits without sufficient evidence. At worst, such discrimination becomes retail redlining, which occurs when disenfranchised groups of consumers systematically receive lower quality goods and/or are charged higher prices for equivalent merchandise than is true for other groups.
     Still, if you learn that an individual customer or family of customers was raised poor or is poor, be alert to how this can distort the wisdom of their current purchase decisions.

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Pattern Choices for Frightened Shoppers 

Agitate Stable Blindness 

Validate Vulnerable Consumers 

Identify Influencers in Family Decision Making 

Reexamine Retail Redlining Temptations

Conjure Up Courageous Robots to Inspire

Why are people more charitable after learning other humans have assisted in disaster relief than after learning the assistance was provided by robots? A set of studies at University of Macau and Stanford University provides evidence this is the case and attributes the difference to human help being more inspirational.
     The researchers then went on to identify two ways the public might be as inspired when robots carry out disaster relief tasks: Describe the robots as behaving more autonomously and/or describe the robots as facing high risk in achieving the results. The scenario used for this experiment was a Colorado wildfire described as “destroying nearly 1,000 homes and forcing tens of thousands of residents to evacuate” during which “firefighting robots worked for two days to control the blaze.”
     Those study participants assigned to consider the robots autonomous also read text similar to, “With a built-in chip, the firefighting robots are highly autonomous and self-directed such that they can analyze a situation independently and freely choose which specific task to take on when extinguishing a fire.”
     Those study participants assigned to consider the robots as exposed to high risk also read text similar to, “With a built-in chip, the firefighting robots are vulnerable to prolonged exposure to heat, such that the chip is at risk of burning up and the robot being permanently harmed.”
     People reading either or both of those additional paragraphs showed greater prosociality than did people not reading either.
     The researchers attribute this finding to the paragraphs conjuring up impressions of robotic courage and to courage in others inspiring our own socially conscious behavior. This explanation fits with the finding that people want to be able to easily tell whether the help they witness comes from a person or a robot, but once that’s done, they prefer an assistance-giving robot to resemble a human. This is particularly true regarding social intelligence of the robot, defined by researchers at University of Bristol and University of Bologna as the ability to perceive and mimic human emotions.
     This definition came from the researchers’ statistically-supported cataloging of robotic intelligence. Verbal-linguistic intelligence allows a robot to accurately interpret information provided by the consumer and respond in readily understandable ways. Logic-mathematical intelligence is required for the robot to solve complex problems. If the robot will be moving through space, visual-spatial intelligence is essential. Processing-speed intelligence allows the robot to promptly complete repetitive tasks.

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Creep Out Shoppers, But Explain 

Program Service Robots to Socialize

Enlarge Fonts for Big or Little Discounts

Sometimes you might aim to maximize profit margins by offering only tiny promotional discounts. At other times, you might aim to clear out musty inventory with deep discounts. However, when a promotional price discount is quite small—such as only 10%--shoppers may consider it not worthy of notice. When quite large—say 70%--shoppers might question the quality of the item. This is among the reasons consumer researchers suggest a range of 15% to 35% to attract new customers and, when offering a deep discount to all customers, labeling it as strictly time-limited.
     Studies by a team based at Saginaw Valley State University, The University of Memphis, and University of South Carolina indicate that presenting the sale price in a font noticeably larger than the regular price also will ease shopper concerns about especially low or high discounts. The relatively big print grabs focus. This diverts attention from the shallowness of the little discount and from quality concerns generated by the deep discount.
     Strangely, the technique is working because the consumer moves away from contrasting the sale price with the regular price, the opposite of what we’d think is basic to a promotion’s attractiveness. The team conducting the studies points to prior research showing how once a person recognizes an item is on sale, they’re less concerned with the precise amount of the discount.
     The font color also can grab attention. Put promotional prices in red ink, advise researchers at Fairleigh Dickinson University, Babson College, Drexel University, and Oxford University. When a sale price appears in red rather than black, it increases the perception of savings by about 70% among male shoppers. Related to this, the men in the studies liked retail ads better when prices were presented in red.
     The effect was much smaller for women shoppers, though. The increase in perceptions of promotional savings with red instead of black ink was about 8%, a difference too small for the researchers to consider it significant, given the variation among people in price perceptions. Still, since the red made a difference for the men, use that color.
     Font size and color for salience work most clearly for very small and very large promotional discounts. With moderate discounts, it’s probably best to highlight the contrast between the regular price and the sale price.

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Offer New Customers 15%-35% Discounts 

Match Discount Depth to Duration 

Ready Men for Good Deals Using Red 

Orient Shoppers to Appreciate Discounts

Circulate Supplier IDs in a Circular Economy

A circular economy system aims to minimize the discard of used materials, instead reusing them. This could mean transformation into something similar to the recycled item (material from recycled soda cans being used to produce new soda cans) or quite different (material from recycled soda cans being used to produce bicycle frames).
     If the end products are to be employed close to the human body (drinking glasses, for example), shoppers might fear becoming contaminated. Carleton University researchers have identified two methods which ease such fears. One of these methods makes immediate intuitive and logical sense: Describe to shoppers how the recycled materials were cleaned as part of the production process. Study participants who were told, “The product will be thoroughly sanitized prior to shipping to customers,” had fewer concerns about disease contamination than were study participants not told this.
     The other method may seem intuitively appealing, yet it also begs for explanation of the effectiveness: Identify the retailer. This consisted of announcing to shoppers the retailer’s name and showing shoppers the retailer’s photo. In the studies, a fictitious name and generic photo were used.
     There was no implication that the study participant was friends with the retailer or even knew the retailer. Still, the explanation for this method working to ease fear is that the retailer was less of a stranger and people’s contamination worries are greater when dealing with strangers.
     The researchers attribute these effects to our evolutionary-determined fear of disease. It’s relevant that the study was conducted with Canadian participants during the second wave of the COVID-19 pandemic. We’d expect concern about contamination to be top-of-mind for consumers during such times. Still, the cultural impact of the pandemic was severe enough to leave a salience residue. Assuring consumers of thorough sterilization measures and personally identifying suppliers might now be vital components for a circular economy’s successful refurbishing, repurposing, and recycling.
     A caution, though, comes from these Carleton University researchers’ reports of prior studies in which assurances of sanitizing and social similarity hurt acceptance. Emphasize cleanliness when consumers weren’t even thinking about dirtiness and the result could be those consumers become more fearful. Accentuate the identity of the item’s supplier and the result might be the impression this person is not a friend outweighs the impression that they are not a stranger. Here, too, fear of disease contamination rises. Best that your assurances are subtle.

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Show Products Made of Recycled Items 

Evolve the Most Basic Sales Pitches of All

Rethink the Timing of Reassurance

Restrict Discount Offers to After Restrictions

You offer shoppers a special bargain. That’s the good news for them. But there are the conditions: “When you buy three.” “On select items.” “For today only.” That’s the bad news, telling the shoppers they don’t qualify for the discount or how in some other way they’re not fully in control. Maybe the notice is boldly announced, such as with large type at the bottom of an ad, in a way intended to stimulate shoppers to buy now. Maybe the announcement is in small type, tucked away with the intent not to distract from the good news.
     But it does distract, say researchers from Baylor University, New York University, and University of Pittsburgh. They suggest that to maintain the shopper’s purchase intention, you lead with the bad news. “For today only, when you buy three items, 25% discount on the usual price.”
     A main reason is that the bad-good order provides the shopper a greater sense of control in the face of hurdles. People generally prefer to deliver good news before bad news. But people like to receive bad news first and finish off with the good news. Related to this, the discount offer maintains higher salience using the bad news-good news sequence because of its logical if/then flow (if I qualify for the offer, then I get…).
     Salience through proper sequencing also applies to stacked discounting, where a retailer piles a second price break onto a first. The ecommerce shopper might see the first discount while browsing through the pages, then a popup reading, “For new customers, an additional 25% off!” Or a consumer might have seen an ad for the 20% discounted price last week and today sees the updated offering.
     If the shopper encounters both discounts simultaneously, the first percentage discount the shopper notices assumes an outsized role. If we’ve designed the announcement so we can predict which will be seen first, make that first discount the larger of the two. If we don’t know which will be seen first, it doesn’t matter which of the two discounts is larger.
     With sequential presentation, in which the second discount comes as a surprise to the consumer, it works differently. The second discount has more influence than the first in the shopper’s perception of how good a deal they’re getting. In this situation, it’s best if the second percentage is the larger of the two. 

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Stack Discounts for Thrust or Surprise 

Add Risk Notices to Dilute Risk Opinion

Extend Discount Eligibility Limits

Pacific Ace Hardware in my hometown regularly sends out discount coupons like “$5 off your next purchase of $30 or more.” Each coupon carries a date range for redemption. I’ve found that if I go into the store a few days after the expiration date and ask to use one of those coupons, the store staff never say no.
     My reaction is a mix of believing that I’m getting away with something and appreciating the flexibility of the retailer. At some level, I realize they surely extend that same allowance to anybody who asks and that the store is pleased to have me spend my $30 or more in order to get the $5 credit. Yet none of that gets in the way of me considering myself a winner. It’s as if I appreciate the discount more than if I’d used the coupon during the official interval.
     Results from a group of researchers at Grenoble École de Management, Baruch College, The Pennsylvania State University, and Towson University indicate my reactions are perfectly typical. In their studies, consumers who thought they’d missed out on a discount and then found they were eligible were more likely to feel special, to consider themselves as getting greater value from the discount, and to be willing to purchase the item than did those people who knew their eligibility from the start.
     Another approach to this situation is to figure that if people miss a chance to buy merchandise you offer at a discount, you’d like them to feel sorry about it. That way, they’ll stay alert for the next time you announce a sales event. You hold sales to draw traffic into your store so shoppers will buy not only the substantially discounted merchandise, but also the items you’re selling at higher profit margins. You want everybody to notice when there’s a big sale.
     Unfortunately, though, many shoppers who miss a big sale will experience regret in a way which leads them to dislike the retailer and criticize the merchandise. Maybe it’s because people blame the retailer for what was their own fault. Maybe it’s because people want to avoid reminders of the opportunity they missed. In the studies, a group of participants who expected to get the discount and then were told they wouldn’t were less likely to want to buy the item than were those who hadn’t expected a discount at all. 

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Project Responsibility for Missed Discounts 

Follow Big Discounts with Smaller Discounts 

Return to Reconsider Your Return Policy 

Dazzle Your Customers