Landmines in holiday shopping

It's war out there -- war on your brain. For example:

Retailers count on buyers' cognitive shortcuts to spur sales. A recent study showed that when shopping in a store, by catalog or by website, people are likely to spend more when they see high prices around them, on items completely unrelated to what they want to buy. And merely setting prices with the number nine at the end, whether it's $1.99 or $99.99, can make consumers feel they got a deal.

With harried shoppers hard-pressed to do the math, retailers put a lot of psychology into their holiday prices. They decide which numbers will be most enticing, and whether "50% off" sounds better than "buy one get one" offers—known as "BOGO," in industry parlance.  

More tricks: 

• Timing discounts to expire makes shoppers feel lucky, says Prof. Galak. "Exclusivity is really what drives it," he says. "People feel like they're getting a deal." 
• Offers that encourage volume purchasing—whether it's two-for-the-price-of-one or discounts that escalate with money spent—play into consumers' determination to get the best bargain possible.

Don't forget the hidden costs.

Buying everything from small gadgets to cars seems to be getting cheaper these days, but owning them isn’t. Taxes and fees on cellphone plans, installation and repair costs on home appliances, and hefty financing fees on cars can now add up to more than 50% of the sticker price of the purchase, according to estimates from experts and data analyzed by SmartMoney.com. And the costs are rising, says Linda Sherry, of consumer advocacy group Consumer Action: Taxes are going up, consumers are keeping appliances and cars longer – and paying more for repairs and poor efficiency. “The result is a real budget buster,” she says.  

In all of these niggling little ways, consumers keep paying for things, long after they’ve ostensibly bought them. Buyers rarely take into account these financial ripple effects, which can add up to thousands of additional dollars, says Ed Mierzwinski, consumer program director at the U.S. Public Interest Research Group. For example, over the course of a two-year service contract, smartphone owners may spend an additional $1,000 on taxes, fees, roaming charges and meatier data plans — all add-ons that are rarely considered when the contract is signed.

But some shoppers are fighting back.

Marketers must contend with shoppers who can use their smartphones inside stores to check whether the specials are really so special, and if the rest of the merchandise is reasonably priced. 

"The retailer's advantage has been eroded," says Greg Girard of consultancy IDC Retail Insights, which recently found that roughly 45% of customers with smartphones had used them to perform due diligence on a store's prices. "The four walls of the store have become porous."

Let's be careful out there.