We all know what it's like: you decide you finally need to get a new computer, TV or camera. The first thing you do is work out how much you can spend, then start looking for the best products in your price range. Big mistake, because budgeting like that will likely cause you to spend more. Here's how to wise up.
Admittedly, common wisdom suggests that setting a budget is a good idea. It means you won't overspend, right? Well, a team of researchers from Brigham Young University wanted to question that reasoning, so they set about testing out how budgeting affects spending. What they found was interesting.
They took groups of participants and asked some of them to set a spending cap and others to be more open-minded when buying different objects, from pens to TVs. Amazingly, those participants that set spending caps consistently spent more than shoppers who did not.
For instance, in one experiment the participants were asked to buy pens. Almost 60 per cent of the consumers who set a budget spent 65p or more on a pen. Conversely, only 39 per cent of those who didn't have a budget in mind spend 69p or more. The same was true of other products, including TVs. The results are published in the Journal of Marketing Research.
But why does this happen? The researchers suggest that when consumers set a budget, they focus on a narrow range of products all of which are closely clustered around their target price. That means that small differences between the products look larger to the consumers, in turn pushing them to look for products with tiny incremental benefits over others. That means the shopper usually ends up buying more expensive items.
On the other hand, when consumers look at products with no fixed budget in mind, they examine the quality of a wider range of products, allowing them to better judge what they are willing to spend. Often, that can result in spending less.
So what does that mean you should do next time you're facing a big purchase? Well, let's say you're buying a new laptop. First, choose a way to narrow the field that isn't based on price: you might want a 13-inch screen, say. Then, look at as many laptops narrowed by that field as possible to get a feel for what else you want, and weigh up which features you're willing to pay for and which you aren't across the entire subset. It might take you a while, but getting a better idea of what's out there could just save you money. [Journal of Marketing Research via Live Science]
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