Tuesday, July 7, 2009

How Costco Primes Us to Spend More Money...


Another great post by Heather at The Greenest Dollar. While I'm a big fan of Costco's, BJ's, Sam's Club, I do agree with the insights below.

You don’t need me to tell you that it’s really hard to save money at Costco. And, I’m not talking about saving money on the price-per-pound for ground beef, or the cheaper price-per-ounce of Jiffy Peanut Butter.

On those things yes, you’re saving money compared to buying at the grocery store.

What I’m talking about is the Ralph Lauren swimsuits. The super massaging leather easy chair and ottoman. The flat screen tvs. The Gucci handbags, and the expansive DVD section.

There is a big reason why Costco stocks these things instead of just food. And, it’s because we buy them. Big time.

I recently finished reading the book, How We Decide, by Jonah Lehrer. And, it’s an incredibly fascinating look at how, exactly, we go about making decisions.

This post isn’t a review of that book (which was amazing). It’s a post inspired by one section of the book, on how stores prime our brains to spend more money.

All research for this post comes from author Jonah Lehrer, and is fully credited to him.

A Quick Look At Our Decision-Making Process

Think about your last trip to the grocery store. Specifically, the cereal aisle.

If you were alone, with time to choose the cereal you wanted, your thoughts might have gone something like this:

“Wow, that Bare Naked Granola cereal looks really good and healthy. Oh, but it’s $5. Too expensive. But that box of Frosted Flakes would be tasty. Oh, but that’s got way too much sugar. I need to eat more fiber anyway. Maybe Raison Bran? Oh, but that cereal’s gross. Maybe Fiber One. It’s $4? Crikey. Maybe there is a store brand that’s tasty…”

And on and on.

All these thoughts probably took no more than two seconds. Walking down the cereal aisle is just like having one long arguement with yourself.

What Lehrer points out, and what we don’t realize, is that all of these arguments trigger a specific set of emotions and associations (page 199).

Sure, we want those Frosted Flakes. That wanting is a very strong emotion. But, we know we need to eat more fiber because it’s good for us. This thought has less wanting, but more obligation, so it triggers a weaker emotion. But coupled with a lower price, and our desire for saving money (which is still a weaker emotion than our wanting of the Frosted Flakes), we might end up buying the fiber cereal.

Most of the time our decisions are not based on logic, even though we think they are. They’re based on emotion.

Our Brain’s Reaction To Shopping

Now, think about how you feel when you find something fabulous in the store. You get excited, right? Your breathing may quicken, your heart starts to pound, and you reach out to just touch it.

When we see something we want to buy, our brain is instantly activated. Know what it does?

Our nucleus accumbens (NAcc), which is the pleasure center of the brain, releases the hormone dopamine, which is the precursor of adrenaline. Dopamine is very, very powerful. Scientists James Olds and Peter Milner discovered that when rats are overstimulated with dopamine release, they’ll literally die of pleasure (pg. 35).

So, the stronger we want something the stronger our NAcc activation, and the more dopamine is released.

Knowing this, scientists can literally tell if we’re going to buy an item before we even know it. It happens that fast.

How Stores Prime Us To Spend More

Let’s go back to Costco. You know what you see when you walk through the door of every Costco store?

You see all those huge, gleaming flat screen tvs. Who wouldn’t love a big flat screen? We see these things and guess what happens? Our NAcc kicks in, and dopamine is released.

But, we may not have $1,200 to drop on a new Sony. So we walk on.

Then, we pass the jewelry counter. And the designer handbags. And the DeWalt tools. And the leather easy chairs.

With each look, our NAcc is being prodded, and the dopamine is flowing good. We want that. And that. And that. We get into a state of wanting.

All this is doing is conditioning us to crave a reward.

What’s key to understand about all this is that we may not buy a $1,200 flat screen that day. Or that $800 easy chair. Or that $300 hand bag.

But our brains have been incredibly stimulated by now to want a reward. So, we’ll probably buy that $12 box of cookies. And maybe that beautiful $20 hyacinth bush for the front porch. And, what the heck, that $30 jacket.

After all, we think, $62 is way less than those other things, right? And besides, we deserve a treat.

And the House Wins…

By strategically placing those tvs and handbags and diamond rings in high-traffic areas, Costco just got an extra $62 out of us. Just by stimulating our dopamine production.


Knowledge Is Power…

So, what do we do with this information?

Well, I’m one of those “knowledge is power” kind of girls. I really think that knowing what is going on in our brains can help us take a step back and analyze what we’re doing.

Walking into Costco, or any retail store, is always going to be fraught with dopamine production, which means our wallets are threatened. But knowing that stores are deliberately priming you to buy a reward for yourself, even if it’s just a little one, can help you stick to your list and walk away with a bit more money in your pocket.

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