Because our brain is wired to love promotions, retailers and Singaporeans keep playing cat-and-mouse over prices.
Saying that Singapore is the city of the year-round sale sounds like a wry understatement. No matter the time of the year, you can hardly cross the road without 7 sales signs popping up in your face, each one bigger and louder than the last.
But it’s not the fault of the retailers. If Singaporeans see discounts and deals everywhere, it’s because retailers are simply giving us what we love.
In fact, Singaporeans’ love of sales is so great that never having deals can make loyal customers abandon their favourite store - even if prices elsewhere are higher.
Seems far-fetched? We bet you JC Penny couldn’t believe it either when customer numbers took a dive after they switched their business model. Their crime? Stopping sales promotions and adopting an Every Day Low Price approach.
Humans Are Hardwired to Seek Bargains
Why do we find sales impossible to resist? We know we have an irrational relationship with money, but why do we automatically reach for our credit cards when we see that four letter word?
The answer: shopping a sale gets you high - literally. This finding comes from the emerging field of neuromarketing, which delves into psychology and neuroscience to help retailers understand and predict consumer behaviour.
The act of buying something changes your brain chemistry and activates the pleasure centre of your brain. The rewarding feelings you feel are as real as they are fleeting, and you soon find yourself needing another hit.
Additionally, seeing a discount on your favourite brand - or what you interpret as a ‘good price’ - also activates your pleasure centre. To make things worse, what you perceive as an ‘unfair price’ activates the pain processing region of your brain; we literally find high prices painful.
Shopping Without Sales is Boring
Sales and discounts are the hallmark of a pricing model known as “High-Low Pricing” (HLP). Retailers apply a high margin on their goods, and slash prices to attract buyers. In contrast, the ‘Every Day Low Pricing model’ (EDLP) features low markups, which translates to low prices on the shelves, but no discounts.
From an economic standpoint, ignoring the predictability of EDLP in favour of the volatility of HLP is irrational. But the problem is the average shopper doesn’t want predictability; we want excitement.
When JC Penny switched from HLP to EDLP, they took away the excitement of bargain hunting from their customers. Shoppers could no longer see how much they were saving (by comparing the regular vs the discounted price), and neither could they enjoy ‘smart shopper feelings’.
Shopping there had become boring for them, so they simply stopped going to JC Penny.
Do Singaporeans Benefit When Everything is On Sale?
We respond so predictably and favourably to promotions that retailers are all but guaranteed to continue using them as a sales tactic.
As a result, HLP is the dominant business model in the consumer market; even businesses that advertise their low prices use it. Think about it: if a certain supermarket really is giving you the lowest possible price every day, then how can your favourite ice cream brand go on sale for 50% off this week?
This raises an interesting question. If retailers apply high markup to accommodate deep discounts during sales, then have consumer prices been driven up by our unstoppable thirst for bargains? When everything is on sale, are we actually spending more money?
Indulge Responsibly to Enjoy Sales
Unless we all spontaneously turn into Zen monks, sales in Singapore will never go away. Since humans have limited willpower (who are we kidding? We love sales!), the key is to practice good financial habits to enjoy shopping responsibly.
When you find a bargain, choose the right financial tools to help you stretch your money. For example, you can offset the cost of your shopping with a credit card that gives you a cash rebate.
One such card is the American Express True Cashback Card which gives you up to 3% cashback on the first S$5,000 spent within the first 6 months. Thereafter, you’ll get unlimited cashback of 1.5%. And if you apply before 7 December 2016, you’ll get a S$40 Starbucks gift card. Hey, free coffee to fuel your bargain-hunting spree!
If you already have a card, check to see if your bank is offering any credit card Christmas promotions. These also help you earn vouchers and rewards points that will offset all your holiday shopping.
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By Alevin Chan
A Certified Financial Planner with a curiosity about what makes people tick, Alevin's mission is to help readers understand the psychology of money. He's also on an ongoing quest to optimize happiness and enjoyment in his life.