After-Christmas shopping and the Spillover Effect

Victor Limjoco in Discover Magazine:

Holiday shoppers beware. That pleasantly surprising sale price can actually bust your budget. A new study by a behavioral scientist shows why we often spend more when we’re convinced that we’re saving. Economists call it the “spillover effect” when a sale on one item can spur extra spending on unrelated items throughout a store.

Behavioral economist Robert Meyer, a researcher at the Wharton School of the University of Pennsylvania, says that retailers take advantage of this when they use discounts to hopefully create a ripple effect throughout the store. “That little local surprise not only affects how many units that you buy of that one product, but also it affects your whole attitude towards what you do elsewhere in the store,” Meyer says.

But no one knows exactly why it happens. To figure out the mechanisms behind this phenomenon, Meyer teamed up with the University of Arizona’s Narayan Janakiraman and Arizona State University’s Andrea Morales. They had volunteers shop in a virtual grocery store and instructed them to supply their household cupboards over a simulated 35 weeks. A $50 prize was given to the four volunteers with the lowest shopping costs.

Meyer found that, on average, if the price of the needed item was cheap, volunteers felt an obligation to stay in the store and shop.

More here.