Spending

Watch out for 2 mental traps that can make you overspend on Amazon Prime Day, says consumer psychologist

"There has been an emphasis on encouraging usage of the Amazon Shopping App."

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This year, Amazon is holding Prime Day from June 21 to 22, about a month earlier than usual. Shoppers tend to spend big: During last year's sale, Amazon sold $10.4 billion worth of goods, according to DigitalCommerce360.

When Prime Day first launched, its purpose was to get more Prime subscribers, says Michael R. Levin, partner and co-founder of Consumer Intelligence Research Partners. Now the retail giant uses it to showcase different product categories' discounts on a day when traffic to the site is guaranteed to spike.

"Amazon can test out all sorts of concepts in a concentrated, focused way," Levin says. "It can introduce new products, try pricing strategies, and see which promotional messages work best."

This means consumers will likely encounter new types of sales that will encourage them to spend more money. Here are two mental traps to watch out for — and experts' strategies for how to avoid them.

1. 'Price anchoring' makes you think you're getting a good deal when you may not be

Amazon listings use several terms that don't mean what they imply, says Simon Blanchard, a Beyer Family associate professor at the Georgetown University's McDonough School of Business. Blanchard's research focuses on consumer psychology and consumer decision-making.

For example, he says, Amazon lists products as "Amazon's Choice," but no one really knows what metric the company is using to highlight products and what that phrase means about the quality of the product.

Some of the language Amazon uses on its product listings can cause the cognitive bias known as price anchoring. Anchoring is when a person gives lots of weight to the first piece of information they receive. If a product listing says an item was $100 but is now discounted to $75, the "anchor" is $100.

Price anchors can encourage consumers to purchase products because they feel as if they are getting a good deal. However, on Amazon listings the "anchor" price doesn't always reflect the market rate of a product, Blanchard says.

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The two terms to be wary of are "list price" and "was priced."

The list price is the price at which Amazon has sold a certain product in the last 90 days. "It's not market price for the product," Blanchard says. "It just means the product was sold at that price or higher in the last 90 days."

If a product says "was priced," that refers to the median price consumers have paid for that product in the last 90 days. "It has nothing to do with the MSRP, or the manufacturer's suggested retail price," Blanchard says.

Amazon can test out all sorts of concepts in a concentrated, focused way.
Michael R. Levin
partner and co-founder of Consumer Intelligence Research Partners

Some third-party vendors take advantage of these unclear terms by raising their prices a couple months before Prime Day, and then dropping prices on Prime Day when traffic to Amazon spikes. This creates the illusion that consumers are getting a good discount, Blanchard says.

"I remember buying an Instant Pot, and if you look at the price, it had been raised a little bit and then around Prime Day they dropped it," he says. "They raised the price a couple months before. That's going to increase your median price and average price."

2. The 'scarcity effect' leads you to buy something quick before it's gone

Throughout Prime Day, Amazon will have flash sales, some lasting only 15 minutes. This setup triggers the scarcity effect, Blanchard says: a cognitive bias that makes people place higher value on products they believe are sought after and running out.

A flash sale on kiddie pools, for example, can make you less likely to price compare or shop around. Instead you might just snap one up, as the sale creates the illusion that they are going out of stock and you have to act fast.

I remember buying an Instant Pot, and if you look at the price, it had been raised a little bit and then around Prime Day they dropped it.
Simon Blanchard
Beyer Family associate professor at the Georgetown University's McDonough School of Business

How to avoid mental traps while shopping on Prime Day

Shopping on your computer, versus on your phone or using your Alexa, can help you avoid falling for these mental traps.

Amazon has been working on its app to make quick buying even more seamless, says Josh Lowitz, also a partner and co-founder of CIRP. "In recent years, there has been an emphasis on encouraging usage of the Amazon Shopping app on smartphones and voice shopping with Alexa, with special promotions for each of those shopping channels," he says.

This makes consumers even more likely to do less research about what they are buying, Blanchard says.

Another way to avoid mental traps is to look at an item's price history, Blanchard says. He uses the site Camelcamelcamel.com, which shows the price history of products on Amazon. You can also price-compare using a Chrome plug-in like Yroo, which will show you how much a product is selling for at other retailers.

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