As we approach year-end, this season is the final push for businesses to end the year on a high note, despite market volatility. Evidence of growth is beginning to appear, with Hong Kong’s retail sector seeing a recovery trend, adding to the festive delight of many. According to the Census and Statistic Department, Hong Kong’s retail sales rebounded by 2.4 percent year-on-year during October 2022, following a marginally revised 1.4 percent decline in the previous month.
We are all acutely aware of the ways in which the pandemic has impacted our lives, but the rise of digitalization is here to stay and is something we cannot marginalise in any aspect, including our shopping behaviour. A recent survey by KPMG China, GS1 HK and HSBC calls out that 61 percent of Hong Kong consumers prefer contactless shopping, and 68 percent of Hong Kong consumers have a higher comfort level in checking out for purchases digitally. Managing the innovation and implementation of digital platforms is the trending path to retail success for the foreseeable future. However, there are other, more innately human factors that we must consider as well.
The constant, despite many changes – the psychology of buying
Source: Artem Beliaikin/ Unsplash
As the old saying goes, “The only constant in life is change”. We have all experienced changes, both large and small, over the past few years, and the only way to navigate them is by spotting the similarities to what was once the norm, and make the best out of them. Despite all of the recent changes in consumer behaviour, the obvious constant is the psychology behind making a purchase. In recent research conducted by Hong Kong Baptist University’s School of Business, we have observed three consumer psychologies that retail marketers need to be aware of:
- The fear is real: Consumers tend to make snap purchases when they feel the sensation of FOMO, “fear of missing out”. Recent studies also show that the pandemic has escalated this phenomena even further, sparking a new “fear of death” discussion. This occurs when consumers who feel they are faced with the risk of death, follow their intrinsic motivation to acquire items they really love or greatly desire before it’s too late, no matter if the actual risk is real or perceived.
- The trap for attraction effect: The attraction effect compels consumers to purchase the seemingly best option available to them, when comparing a set of two other variables. It occurs when there is a third alternative that is considerably less attractive than item one and two, and this third option boosts the attractiveness of item one in comparison to item two. This is leveraged to drive by sites that offer comparison shopping.
- Compromising for the neutral option: The compromise effect occurs when a choice is made between an alternative that is average in all aspects, while being superior in one way, but inferior in another. When it comes to price, quality or product features, many consumers tend to opt for the most ‘neutral’ or middle-of-the-road choice out of cautionary reasoning.
Agile sales strategies to accommodate ‘revenge spending’ this holiday season
The year-end season for 2022 has been defined as a prime moment in time for ‘revenge spending”’, as evidenced in a retail survey from Deloitte which highlights that global consumers are making celebration a priority over precaution this year. Despite household finances being at one of the weakest levels in a decade, spending appears to stay steady as consumers cut certain non-essential purchases in order to give gifts and socialize, particularly after the pandemic. Businesses must therefore fully understand the psychology of consumers and adopt an agile sales strategy to come through this competitive year-end successfully.
Leveraging fear of scarcity with limited sales and range offers
Source: Markus Spiske/ Unsplash
In our research, we discovered that resource scarcity activates a promotion orientation, where people typically perceive their shopping goal as hopes and ideals. Therefore, to achieve desirable outcomes, consumers are inclined to seek items with added fervour if they sense that they may soon disappear from the shelves. To leverage this psychological correlation, businesses should make use of limited sales offers during this year-end season, encouraging consumers to buy quickly or buy more. The fear of scarcity is reinforced by various settings, particularly in the e-commerce world where one can often find time limits per order, or wordings on products such as “limited” or “only one left”. All of these prompt ambitious consumers to buy products—and occasionally those that they do not need.
During the state of scarcity, businesses can also activate different pricing strategies. A range offer, which refers to a flexible pricing strategy instead of a fixed discount rate, is a systematic way to leverage the impact of resource scarcity. For example, instead of pricing a car at USD 17,500, a used-car seller can provide a range of USD 17,000 to USD 18,000. Both end-points become signals for consumers to judge the reserve price for the business, while for the seller, range offers often yield both financial and relational benefits, especially when compared to fixed price point offers. This flexible pricing is particularly effective for small shops selling Christmas decorations, especially when these items are a must-buy item for many households. Instead of giving consumers the fixed price point offer, giving them a range to consider will drive sales and benefit the businesses.
Leveraging visual merchandising to attract consumers
Visual merchandising (VM) is a marketing strategy where businesses organize products in various ways to gain attention from consumers, increase desirability, and elevate the chances of a product purchase. Applying an appealing and strategic visual setting within retail stores plays on consumer emotions and psychology, ultimately benefiting the business. During the holiday season, apart from changing the store design into festive themes with red and green colours, businesses should also group festive promotional items together, or match new items with leftover items together to give them a new look and boost the sales. Tapping into the attraction effect previously described, if businesses want to push the sales of nicer items, they can group them together with less attractive options.
Businesses should also consider the online consumer journey and revamp their VM during year-end seasons and boost sales. Businesses should rearrange the placement of products and put festive items on their front page to attract purchases. To reinforce the concept of resource scarcity, businesses should also use their VM strategy to reinforce the limited amount of products available, thereby urging consumers to buy quickly.
Pricing products to maximise the consumer compromise effect
As mentioned, because of the compromise effect, most consumers use cautionary reasoning in the purchase process and then tend to choose the neutral option. In a study on food consumer choices in China, consumers are more likely to select pork products in a neutral price range as opposed to the highest or lowest priced option. This especially applies to festive food and beverage products, including wine.
According to GlobalData, the value of sales is expected to increase by 6.6 percent this holiday season, driven mostly by inflation. Businesses need to bear this in mind when determining the pricing structure for products in order to boost sales. Taking the compromise effect into consideration, if there are leftover products that need to be sold, businesses can think about marking it up into a mid-level pricing, allowing consumers to consider that product as the most neutral choice to select. This can create a win-win situation where consumers feel comfortable in their purchase, while sellers move product by understanding the buying psychologies of consumers.
The 2022 year-end season is expected to see an onslaught of revenge spending. To end the year on a high note, businesses must utilise the latest trend in consumer psychology to create new sales strategies. With the rise of digitalization, the consideration should be both offline and online. It is time to get used to the next normal and navigate this exciting season towards success.
Author: Dr. Shirley Xueni Li (Department of Marketing) from Hong Kong Baptist University School of Business
Disclaimer: The views and opinion expressed in the article belong solely to the original author and do not represent the views, opinions and position of Retail in Asia.