FOMO is Real: The Economics Behind Black Friday

Black Friday is the biggest shopping event of the year, and projected spending for Black Friday 2023 is 8.74 billion GBP in the UK (P. Smith, 2023). Why do people still participate? Due to cognitive biases in behavioural economics affecting consumers’ decisions. Behavioral Economics studies economic theories psychologically (Angner and Loewenstein, 2007). Empirical evidence from behavioural economics shows consumers’ choices often deviate from economic assumptions (Frederiks, Stenner and Hobman, 2015).

So how exactly does behavioural economics inform our crazed shopping decisions during Black Friday? There are many powerful cognitive biases exhibited by consumers to explain the Black Friday phenomenon. Have you ever felt compelled just to buy something because if you did, then you would get another one for free? When retailers use the phrase “Buy One, Get One Free” during sale events, they are appealing to an effect in economics, known as the Zero Price Effect. When a product is advertised as free, then the customer places greater value on it (Shampanier et al, 2007). This is why consumers often act irrationally when presented with promotional deals during Black Friday because of the importance they place on ‘free’ products.

However, you will be sad to hear that you are yet again a victim of manipulative advertising campaigns. In many cases, retailers will actually increase the price of the item you are actually paying for (The Zen Agency, 2023). Therefore, you are not necessarily getting the second item for free because you have to pay the difference between the original price and the higher price in the face of the Black Friday deal. Retailers are smart and consumers, like you, motivated by materialism, are just their little puppets.

Retailers use the weapon of Black Friday to their advantage because they themselves are familiar with the bias that consumers display when making decisions. For example, they are familiar with loss aversion, in which consumers place greater importance on losses than gains (Gal & Rucker, 2018). In the context of Black Friday, consumers are more focused on the consequences of not partaking in these deals, rather than the benefits that they acquire from buying items during the sales. I, myself, have definitely fallen victim to this so do not fret! Black Friday is a dangerous mind game and I am positive that we have all once been a sucker for a deal!

Companies rely on a number of techniques, including psychological tactics designed to take advantage of consumer biases to achieve this result. The mad rush of Black Friday prepares the ground for this.

Have you ever noticed how they often advertise "limited-time offers," which stimulates the scarcity bias in the consumers? When customers notice that there is less time or less supply of a product, it plays a significant manipulative role in how they perceive the actual value of the product (Cialdini, 2021). For instance, doorbuster deals are promoted as being available only for a short duration or until stock is exhausted, hence, customers are pushed into making a hasty buying decision, lest they miss out on the opportunity.

Another trick is the anchoring effect where retailers place the "original price" near the discounted price to make a visual anchor, this makes the discounted price seem like a great offer by comparison (Kahneman, 2011). This capitalises on consumers' inclination to overweigh the first bit of information presented as the basis for the decision. It is a very sneaky tactic that makes you think you are getting a bargain, even though the original price might have been artificially inflated.

Companies use another social strategy during Black Friday called the bandwagon effect when they flaunt how many bought or viewing the products implying that there is a need (Aronson and Aronson, 2018). This strategy makes use of social proof heuristics, in which individuals use the actions of others as evidence that they are correct. Messages on online shopping sites such as "20 people have this in their cart right now" cause urgency which is similar to the atmosphere of a crowded store and everyone is grabbing something off the shelves. Such strategies boost sales because we have a tendency to follow the herd and believe that something must be right if everyone else is doing it.

So how can you make sure you will not be a victim of those companies’ deception? Fear not, I will give you some tips on how to be a wiser consumer!

First of all, set yourself a budget before divulging in the world of discounts. Yeah, it is a cliché but it is crucial in keeping your finances in check. Picture this, you click on those websites and suddenly you get a surge of wanting to buy everything, and you ask yourself, “what more can I buy?” and before you know it, you have overspent and regret kicks in. Trust me, been there, done that. Remember, your budget will not be the same as your friend’s. You need to know what you can or cannot afford before you start your shopping spree. So, force yourself to follow a personal budget before you spend it all in one place!

Secondly, Black Friday is an annual occurrence. You need to remind yourself that these kinds of promotions will come around again! It is a never ending sales carousel; Christmas sale, Boxing Day and many more. Focus on what matters to you and what you actually want. There is no need to pressure yourself into buying everything that has a discount. Now repeat after me, just because I WANT it does not mean I NEED it!

So next time Black Friday comes around, approach the phenomenon with hesitancy and think to yourself “Am I really getting a deal here?” or are you just another victim of a manipulative marketing strategy. Avoid social media at all costs and exercise a great deal of self-control. As someone who has forever been a victim to the appeal of Black Friday, trust me your bank account will be eternally grateful! Now go shop responsibly!

References

Angner, E. and Loewenstein, G. (2007). Behavioral Economics. [online] papers.ssrn.com. Available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=957148. Aronson, E. and Aronson, J. (2018) The Social Animal. New York: Worth Publishers, Macmillan Learning. Cialdini, R.B. (2021) Influence: The psychology of persuasion. New York: Harper Business, an imprint of HarperCollins Publishers.

Frederiks, E.R., Stenner, K. and Hobman, E.V. (2015). “Household energy use: Applying behavioural economics to understand consumer decision-making and behaviour.”, Renewable and Sustainable Energy Reviews, [online] 41(1364-0321), pp.1385–1394. doi:https://doi.org/10.1016/j.rser.2014.09.026.

Gal, D. & Rucker, D. (2018). “The Loss of Loss Aversion: Will It Loom Larger Than Its Gain?”, Journal of Consumer Psychology, 28(3), pp. 497-516.

Kahneman, D. (2011) Thinking fast and slow. U.K: Penguin Books. P. Smith (2023). Topic: Black Friday worldwide. [online] Statista. Available at: https://www.statista.com/topics/8714/black-friday-worldwide/#statisticChapter [Accessed 13 Apr. 2024].

Shampanier, K., Mazar, N. and Ariely, D. (2007). “Zero as a Special Price: The True Value of Free Products”, Marketing Science, 26(6), pp.742–757.

Thezenagency.com. (2023). Black Friday Consumer Behavior - The Psychology Behind the Madness. [online] Available at: https://www.thezenagency.com/latest/the-psychology-behind-black-friday-understanding-consumer-behavior/#:~:text=Loss%20aversion%20is%20another%20powerful [Accessed 17 Apr. 2024].