4 Ways Retailers Get You to Spend More
Now let’s be honest how many times have you made a trip to Sephora just looking to buy some concealer only to find that hundreds of dollars later you have enough makeup and skin care products to last an entire year? Don’t feel guilty it happens to all of us and often it’s by design. Retailers know how to get you to part with that money you were stashing away for a rainy day. If you are curious about how retailers get more and more of your paycheck then consider these four tricks they use.
1. Loss leaders. Loss leaders are one of the oldest tricks in the books retailers use to get you to spend more. Costco sells commonly purchased items like rotisserie chickens or hotdogs at low prices to get you in the door hoping you will stay and buy a wide screen TV after you pick up some groceries. Costco’s hotdog combo is actually the same price today that it was in 1985. Speaking about this Bob Nelson, senior vice president of financial planning and investor relations at Costco said: Costco generates “very little money” on the combo deal, but “we get so much more mileage out of it than we would by raising the price to $1.60 and making a few more million dollars.” Because a customer believes they are getting an uncommon deal they are more likely to stay awhile and spend more.
2. Buy now, pay later. Buy now, pay later allows consumers to make purchases they would not normally be able to make with the service driving up conversion rates. “We launched Klarna on the Macy’s website in October [2020] and we’ve since scaled it across Macy’s, Bloomingdale’s and Bluemercury, both online and in stores,” said Jeff Gennette, Macy’s CEO. “With Klarna, we continue to see higher spend per visit and increased acquisition of new younger customers, 45% are under 40. Our goal is to convert all of these new customers to Macy’s loyal customers, who return for future purchases.”
One of the reasons retailers have jumped on the buy now pay later bandwagon is because it works. It is estimated that conversion rates increase by 20% to 30% when buy now pay later is an option and average order size jumps by 30% to 50%.
3. Store design. Store design plays a bigger role than you realize in getting you to spend more. Home many times have you found your shopping cart filled with miscellaneous items before you even arrived at the produce section in a store like Costco, the actual reason for your trip? Know that is by design. Costco purposely puts more essential shopping items like salad and milk at the back of the store so that you have to look at all of the discretionary items first. Often at the front of a Costco store are heavily discounted big-ticket items like electronics that often spur impulse buys. You really need that new 70 inch TV don’t you.
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4. Loyalty programs. Sephora is known as having one of the best if not the best loyalty program in retail. Sephora’s Beauty Insider loyalty program boasts over 30 million members for a reason. It is not your boring old program with only a few benefits. Members have a wide variety of ways for redeeming points. Some of these ways include Beauty Insider Cash, an end of year discount, a birthday gift and free shipping.
Source: Sephora
Sephora has also sweetened the deal in the past by allowing members to participate in sweepstakes. In 2019 a Sephora Beauty Insider sweepstakes winner won $1 million. Now that doesn’t sound like your average loyalty program. "We also know rewards that provide greater emotional and memorable experiences are the most meaningful for our clients, and we want to continue to deliver personalized experiences where our clients can choose what works best for their needs. The emotional component of loyalty is a vital driver of our loyalty program and what really matters most to our clients," said Allegra Stanley Krishnan, former vice president and general manager of Loyalty at Sephora.
If you are running to Sephora to buy more makeup and get more Beauty Insider points you are not alone. It is estimated that people are 30% more likely to spend money on a brand when they are enrolled in a free loyalty program and 60% more likely to spend money on a brand when they are enrolled in a paid loyalty program.