- If you've ever bought something because an influencer used it, you've experienced social proof.
- The scarcity principle drove many people to buy way too much dry pasta at the start of the pandemic.
We're a few weeks into a new year, which is a great time to take stock of your financial goals and how to create better habits to achieve them.
One of my goals is to cut back on gratuitous spending. While I largely avoided the temptation of holiday sales, I made my share of impulse buys that put a dent or two in my wallet. We've all had our moments of weakness when shopping and that's not entirely our fault — there's an entire industry built around getting us to spend money, even when we don't intend to.
The solution? Learn the psychological principles driving these marketing strategies and beat them at their own game. Here are four psychological principles you can use to cut back on needless spending.
1. Social proof
In psychology, social proof refers to the idea that people adapt their behaviors to emulate other people. It's why influencers are so successful at getting us to buy six tubes of mascara or the same Revlon lipstick that keeps popping up on your Instagram Explore page. Watching other people use a product successfully and discuss its benefits triggers us to want to emulate them.
I've seen this in action many times — it's how I ended up with a drawer full of The Ordinary skincare products that I probably won't get through any time soon. When you're inundated with social media posts touting the same product over and over, it's tempting to give in and buy said product. Especially when doing so is just a few clicks away.
So what can you do about it? I, for one, have stopped watching YouTube videos of product reviews — unless it's something I actually need. I also stay off the Instagram Explore page, where influencers are constantly hawking the miracles of skincare products. Knowing what triggers your impulse shopping habits is the first step in addressing it.
2. Anchoring bias
Anchoring bias refers to our tendency to rely on the first piece of information we're presented with to make a decision. When shopping, anchoring can distort our ability to accurately value a product by focusing our attention on the original versus sale price. By seeing the price difference, you might feel you're getting a good deal and thus become more likely to purchase an item.
In this scenario, it's important to remember what an item is worth rather than how much you're saving on the sale price. I fell into this trap with an Amex Offer recently, making a purchase merely because the discount made it more palatable. But I wasn't really saving money because I was still spending more on an item than it was intrinsically worth. Keep this in mind and avoid falling for the trap of comparing past and present pricing.
3. Scarcity principle
The scarcity principle is technically an economic principle, but it explains a crucial aspect of consumer behavior that leads to overspending. Consumers are more likely to buy items that they perceive as dwindling in supply. This is one reason grocery shelves were empty in the early days of the pandemic. Many consumers heard about dwindling supplies of toilet paper and dried pasta on the news and rushed to stock up on items before they ran out completely.
Retailers will use the scarcity principle to convince consumers to purchase items by emphasizing dwindling supplies or limited-time offers.
Here's the workaround: Remember that most things are quickly replenished and sales will come around again. Don't let a sale dictate your purchases — instead, time the purchase of necessities around sales.
4. Loss aversion
Have you ever bought something online and then spent more money than you intended just to get free shipping? That might have been loss aversion at play. According to this behavioral principle, the negative impact of losing money is perceived as worse than gaining that same amount. It becomes preferable to "gain" free shipping by adding more items to your cart than to "lose" money on shipping.
I've definitely been in that position, stockpiling things and spending more than I needed because it made more sense to spend money on items than shipping. By recognizing this habit, you can reassess whether the extra spending is worth it. Maybe you don't need to place that Target order after all and can instead walk into a store to make your $20 purchase. You'll get it faster and will avoid the shipping charge.