BLACK FRIDAY (MIS)BEHAVIOUR – NUMEROUS BEHAVIOURAL BIASES IMPEDE ABILITY TO REASON

Tamzin Nel, Portfolio Manager, Anchor Capital

 

Black Friday this week, closely followed by Cyber Monday on 2 December, are two manic shopping days quite new to the South African Consumer.

 

According to Black-Friday.Global, in 2018 the Black Friday discount shopping phenomenon has seen a much faster growth rate in SA vs. any other country, with a 9,900% jump in interest and a 1,952% rise in Black Friday sales when compared to any other day of the year. Meanwhile, SA price-comparison platform, PriceCheck, writes that in 2017 website traffic shot up from a daily average of 94,000 visits to 290,000 visits on Black Friday.

 

Financial behavior tends to be more emotional than rational and there are numerous behavioural biases which impede our ability to reason if we don’t understand them and make a conscious effort to work around them. We often act automatically or subconsciously in response to our emotions rather than rationally and logically by thinking through our decisions. The irony of people storming to the shops the day after giving thanks for everything they have is an article for another day.

 

Consumers should better understand their cognitive fallacies and the context in which they make decisions on days such as Black Friday as we can only better ourselves by knowing ourselves and the Behavioural Economics at play during days such as Black Friday is particularly interesting.

 

Black Friday is, arguably, a glorified sale which has been framed as a special event and once-a-year opportunity. The perception is created that consumers won’t have access to this kind of discount again soon. This is known as framing and ties in closely to scarcity and loss aversion. People fear that they might miss out because not only is it a limited day, often retailers mark the stock itself as limited in edition or availability which may not be true. This raises the perceived value of the product or service as we all know that scarcity and value is often inextricably linked. Looked at objectively, the discounts might not be that great and seasonal sales aren’t that rare.

 

Another behavioural phenomenon is that of herding. It is rooted in our evolution to find comfort in fitting in with crowds and people easily become caught up in the euphoria or behaviour of those around them.

 

The sunk cost fallacy is often also demonstrated in consumer behaviour on this day. A buyer might get up early to queue or load a shopping basket online and then, even if what they initially intended to buy is not available, they end up buying something else as they have already sunk the cost of time or effort spent. In addition to this, it might be painful to part with the first R100 but every additional R10 or R50 is easier to spend. The amount of pain experienced in parting with hard-earned Rands decreases with every additional increment.

 

Also be aware of the halo effect. It is important to look at every deal in isolation as often people will see one great deal in a shop and assume that all the other sales are great deals as well.

 

Most importantly, always take cognisance of the fact that, a bargain or a great deal is only such if an individual can afford it! This is probably the most important mantra consumers should repeat to themselves as they get overwhelmed by the sheer number of Black Friday/Cyber Monday deals available.

 

Retail management platform, Vend’s data show that in 2018, there was a significant YoY increase in consumers who made their Black Friday purchases using a credit card – 53% of sales was cash and 45% by credit card (vs 2017’s 58% of cash sales and 36% on credit). This is telling, perhaps, that after a very difficult year for local consumers, many chose to take advantage of special offers on credit.

 

While Black Friday can be a day when consumers get great deals, it is also a day on which shoppers spend money on impulse buying due to marketers using consumers’ behavioural biases to their advantage.  As a consumer, you need to ensure that your bank balance tends more towards black than red during this time.

 

ABOUT ANCHOR CAPITAL

Anchor is a wealth and asset management business that has been in existence for 8 years. Anchor is listed on the JSE and has approximately R60bn in assets under management and advice. Anchor’s head office is in Bryanston, Johannesburg with regional offices in Pretoria, Kwa-Zulu Natal, Cape Town, Mauritius and London. With a team of over 250 people, Anchor manages local and global investments across asset classes for private clients, financial advisors and institutions. Anchor understands that change is constant. So, we put the individual first and have organised our business to nimbly respond to the demands of an ever-changing world.

 

ISSUED ON BEHALF OF ANCHOR CAPITAL

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Lunice Johnston Communication

Lunice Johnston

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