According to the Nobel prize-winning economist, Milton Friedman, there were only four ways to spend money:
1. Spending your money on yourself: you care about what you buy and how much it costs.
2. Spending your money on other people: you care about what it costs but, potentially, you care slightly less about what you buy.
3. Spending other people’s money on yourself: you want to get the right thing, but the price isn’t so much of a concern.
4. Spending other people’s money on other people: potentially you don’t really care what you buy, and you don’t care how much it costs.
Friedman was, I suspect, thinking in terms of traditional economics. Behavioural economics tells a slightly different story…
The first category is much more variable than it first appears. Our ability to be unconsciously influenced by marketing activity means that, often, our evaluation of value for money is contextual rather than absolute. That 50% off at Boots can feel compelling enough that we don’t go online and compare prices; if we did, we might discover the same product available at Amazon for a lower price.
Our work has identified some interesting variations in Friedman’s second category too…
Buying when you know something will be shared
If you’re anticipating that you will share the gift, there can be a tendency to buy a more basic option rather than get something impressive. Loss aversion can be triggered by the thought of other people consuming a more premium product without the full appreciation of knowing what it cost. In these days of barcodes rather than price tags, there’s no way to accidentally forget to remove a price clue. If you’re the recipient of this type of gift, you probably won’t hate it, but it won’t delight you.
Buying for someone else but anticipating that you won’t get to share it
Here, people often use price framing to strike a balance between minimising the cost to them, whilst maximising the perceived financial value to the recipient. Discounted products are particularly attractive, because the assumption is that the recipient will gauge the product’s value on the basis of its full retail price. Having a product that looks expensive is also appealing. However, since there is no expectation of getting access to the product oneself, how intrinsically appealing the product is matters relatively little. If you’re the recipient, the chances are this type of gift is one you won’t use.
Buying for someone else when you expect them to share it
Now elements of option B are blended with self-interest. Yes, buying something on promotion is perceived as a win-win. But now the buyer not only cares about the gift being good, he has the opportunity to be experimental. Unlike when buying for oneself, there is no loss aversion from the risk of not enjoying the product because its primary value is as a gift that seems to be expensive. If you’re the recipient, you could get something great, or at least to get to try something new without having to pay for it.
Buying yourself a gift
Let’s face it, buying gifts for other people is nice (it’s more blessed to give, blah, blah…), but when you’re browsing that retailer’s website or drifting through the aisles, there’s always little old you who’d appreciate something new. (And, let’s face it, you’ve got added justification from an enhanced understanding of why other people’s gifts to you are often a bit ‘meh’). Now you’ll spend big to get something that will make you feel special. The best part is, that you know exactly how much it cost so you’ll definitely appreciate it (in fact, brain imaging studies show that the reward centres of the brain light up more if we think something is more valuable). You’re the recipient and you’re loving it!
How much difference can these buyer delineations make?
In our behavioural insight work, we’ve found instances where the same person will spend up to 50% more in a category depending on how they perceive the gift’s subsequent journey.
Practical Insights
Now, whether you use these insights to understand your own shopping behaviour, to evaluate the gifts you receive this Christmas, to influence the quality of gifts you receive (“We really must get together between Christmas and New Year.”) or to fine tune your marketing strategy, is entirely up to you. But, despite what Tesco’s advertising says, our understanding is that Santa is still making lists.