Wednesday, March 9, 2011

How We Help Advertisers Trick Us

I used to think that consumers were hapless victims of advertising techniques designed to trick us into thinking that items are cheaper than they really are. However, I now realize that to some extent we contribute to the deception.

To choose a simple example, suppose that the advertised price of some item is $17.99. We often say that the item costs 17 bucks. However, assuming that 13% HST applies, the real price is $20.33. I used to think that people were just bad at math and were being fooled. However, when we want an item, it’s easier to justify its purchase (to ourselves or a spouse) if we focus on the lower figure.

This effect is even more pronounced with the cost of airline flights. A flight might be advertised at $99, but this is a one-way fare and doesn’t include airport charges, fuel surcharges, baggage surcharges, and a host of other fees. The final price of a return flight could easily be $400 to $500 (or $800 to $1000 for two people). But it is much easier to justify taking the trip if we focus on the $99 figure.

I see this with cars as well. An ad may trumpet $19,999, but the final price with a reasonable set of options and after all the fees and taxes could be $28,000. Few people will admit the real final price they pay for a car. They often quote the price from an ad as though that is the final price they paid. I used to think that people were deliberately misleading others on the price they paid. However, if they misled themselves to justify buying the car, then it is possible that they really think in terms of the lower figure.

A modest amount of self-delusion may be a necessary component of a happy life, but it can be damaging financially.


  1. I think that retailers should be forced to post the true sales price to the consumer. Airport fees are ridiculous.

    Even when I worked in the hotel industry we would advertise a room for $100 plus tax. But the consumer didn't know that the tax wasn't just GST (5%), but also a provincial lodging tax (4%) and local destination marketing fee or DMF (2%)

  2. @Echo: I agree with you. The only amount I care about is my final price. This type of pricing is common in Europe and we should have it here.

  3. I'm pretty sure that retailers are required by law to give the price exclusive of sales tax. It was a political decision made when the GST was introduced.

  4. @Andrew F: Yes, I think you're right. And retailers have learnt many other ways to advertise less than the full price. These other methods are not required by law, but they are profitable. I believe that consumers are in some cases happy to be fooled by these methods.