Blog
Consumer Spending in 2021
Tommy
I watched a YouTube video by Nate O’Brien, a personal finance YouTube influencer, the other day about how he doesn’t believe in sales/coupons and that got me thinking about consumer spending. His argument was essentially that most sales/coupons make consumers spend more money than they need to as sales/coupons give people instant gratification. And I think that is true to a certain extent.
Like everyone else in the world, I love saving money! Saving money on purchases makes us feel good about ourselves and it makes us have a sense of accomplishment. Why do you think I make my bed every morning? It’s a W to start off the morning everyday. But consumer spending has changed drastically with the rise of Amazon and E-Commerce.
I love shopping online! It’s convenient as I save time and I can sit on my couch, I pretty much get free shipping, and I get extra credit card points by using online shopping portals or cash back using Rakuten. There are not a lot of pros with going to stores anymore. But I can think of two reasons. For a social interaction with people (the pandemic made me value this) and to try things before you buy especially clothes and large purchases.
So I wanted to discuss 3 ways that businesses use to generate more revenue to make consumers spend more money.
Sales & Coupons
Let’s start off by saying that I do actually think that sales/coupons can save you money. But you need to make sure that you will actually use the product or service. The purpose of sales is for stores to empty their inventory and it’s a last ditch effort to generate revenue.
You might see a winter jacket 50% off because the store is switching to their spring lineup or meat/milk where it’s about to go bad, but still good to sell at a grocery store. Another trick is your “daily specials” at a restaurant. They are special because that typically means the ingredients used to create that dish are about to go to waste. But you need to step back and ask yourself, do you really need a new winter jacket? Do you want to pay half-off for nearly expired food?
Sales/coupons are all about psychology and consumer behavior and bank on people not being able to control their buying impulses. A similar thing goes for why businesses flash big signs that say Lysol wipes are $4.99 instead of $5.00? Because $4.99 looks 100 times cheaper than $5.00 even though it’s only 1 cent cheaper.
Another example, “Buy two, get one free.” Do you really need to buy 3 pairs of shoes at this time? GNC, the health supplement store that filed bankruptcy in 2020, is the one of the worst culprits of this!!! Also, I despise their salespeople because the remind me of used car salesmen… But they always have those offers buy 5 protein bars, get 1 free or buy 2 huge jugs of protein powders and get one free. No I don’t need 5 protein bars when I only need 2 or I don’t need 12 hot dog buns when I only have 8 hot dogs. And me and Steve Martin think alike in a classic movie called Father of the Bride.
Another bad apple is Instacart. If you don’t pay for their Instacart Express subscription, then you don’t get free shipping. But they barrage you with many reminders to spend $15, $20, or $25 more to get free shipping. Guess what? Shipping is like $3.99 or less than $5 so all they are doing is trying to generate more revenue.
Coupons are just another way to buy more when you don’t really need more items. I only use coupons at my local grocery store when I know I will use all of the products and not go to waste. Mariano’s sends them to me in the mail about every two months. And Mariano’s coupons are actually pretty good unlike these manufacturer coupons pictured to the right.
Bulk-Buying
Costco has a huge, almost cult-like, following. Their parking lots are always slammed with cars when I drive by one. They preach that you can save money by buying items in large quantities. I think that they have a sound business model and it can be valuable for a lot of people, especially families with children. Over the years, Costco has expanded into the gas industry, travel agency, and is even a car dealership. So there are some more uses for a membership other than just bulk-buying.
I have never shopped at Costco because I know I will never get enough value out of my membership. Similar to coupons, bulk-buying is only useful when you know you will not let products go to waste. So nonperishable items or items with long shelf lives are the most beneficial when it comes to bulk-buying. Perishable items like food with expiration dates will typically go to waste and this definitely happens with me.
Subscription Services
Subscription services have actually been around for a very long time, but it seems like they have just started in 2019. The two oldest culprits are magazine subscriptions and gym memberships. Subscription business models bank on people to keep on renewing their monthly subscriptions and to not fully utilize their product/service. I saw a Truebill commercial on TV about a year ago and a light bulb finally went off in my head after seeing that commercial about subscription services. That made me write down every subscription that I have and note when it renews so I can cancel it if needed.
Gyms are notorious for subscriptions with your New Year’s Resolutioners every year… Oh, we’ll waive your initiation fee and you will get 3 free sessions of personal training. For the initiation fee, if you have an initiation fee of $300, a gym membership of $50/month, and you don’t go to the gym. They will recoup that fee within 6 months. Also, it’s a pain in the butt to cancel as well as they will pitch a hard sell one last time to prevent you from cancelling. And those “free sessions” are a way for the trainers to cross-sell you and try to make you spend more money. Don’t get me wrong, personal trainers work for some people and are valuable as they hold you accountable. But in 2021, you can learn almost everything on the internet…
Now, the biggest subscriptions are mostly in the entertainment business: Netflix, Spotify, Hulu, Disney+, etc. Other products I have used that have subscription business models are Freshly, Dollar Shave Club, Manscaped, Gillette Shave Club, and Tiege Hanley. Even Amazon Prime is a subscription, but pro tip, you save money by paying annually.
Bottom Line
Consumer spending is more psychology and human behavior than anything. As stated above, there are many tricks that stores use to make consumers spend more money. Another example is the study that showed playing Christmas music at stores made people spend more because it makes people feel happier. Christmas music drives me nuts after one play-through.
The general rule of thumb is to make sure you get enough value from things you spend your hard-earned money on. I learned this when I got my first credit card with an annual fee. Paying an annual fee on a credit card is only worth it if you come out ahead via rewards and perks (after paying your balance off in full). Another tip is to be aware of all of your subscriptions and where you money is going. I use my finances template to keep track of all subscriptions and update it as I change things up. If you don’t fully utilize something, then stop paying for it. Lastly, don’t buy something just because it’s on sale or you can get a good deal. Sales and opportunities come and go and there will be others in the future. And sometimes it’s a trap!
Photo by Negative Space from Pexels