Black Friday: Shoppers, Start Your EnginesBy
If Christmas did not exist, Toys 'R' Us would have to invent it—or some other joyful family-themed holiday to give millions of people the license to go on a weeks-long spending bender. These days Christmas shopping is not just a sport, it's a spectator sport. We tune in to the local news on Black Friday to see the mobs streaming into department stores and rampaging among the shelves, their wobbling shopping carts piled high with televisions and video game consoles and Nespresso machines. It's like a scene from a city under siege.
Who are these people? we think, shaking our heads. And how much are those Nespresso machines? And wouldn't I be enjoying this spectacle more if I were watching it on a bigger television, like the ones Best Buy (BBY) is selling at such ridiculously low prices?
Seen from afar, or in the cold hard light of January, holiday shopping can seem a bit insane—all that time spent at the mall, or at our computer typing our credit-card expiration date into online shopping sites. Although the most common explanation for the name Black Friday is that it marks the moment when retailers climb from the red ink of loss into the black ink of annual profit, one of the earliest recorded usages was actually by Philadelphia police in the 1960s, to refer grimly to the day when traffic-clogging hordes of shoppers descended on the city's downtown.
Nevertheless, it's not easy to ignore the circus. There are, of course, the markdowns, and all those people on our gift lists. But social obligation and rational calculation can't really account for the holiday shopping experience. The truth is, retailers are depending on consumers to go a little crazy: According to the National Retail Federation, the holidays account for anywhere from 20 percent to 40 percent of its members' annual revenues. A strong shopping season can give the whole economy a short-run boost.
In the long run, though, retailers aren't doing themselves or the economy any favors by pushing shoppers' buttons so expertly. Families that max out their credit cards eventually must cut back, so spending today robs from spending tomorrow. Americans are figuring that out: The personal savings rate was 5.3 percent in September, up from 2 percent in 2007, before the recession struck and trillions of dollars in paper wealth were wiped out.
Still, every retailer is looking to increase profits by mastering the art of inducing purchases more effectively than the store next door. They are aided and abetted by a growing body of research that provides a remarkably complete portrait of the modern consumer, with all of his tics and foibles. The research can even help make sense of Black Friday and the complex interplay of greed, guilt, and psychic resignation that drives it.
Among other things, studies suggest that the glow we get from buying gifts for others makes us spend more on ourselves, and that the number of times we see a blandishing Christmas ad matters more than what it says. And in shopping, momentum matters a lot—buying one thing makes us far more likely to buy a second, and buying a second makes us far more likely to buy a fifth. "The marketers are incredibly smart. They usually come up with the deep psychological principles of what makes people do what they do before the psychologists do," says Robert H. Frank, a behavioral economist at Cornell University.
Above all, these findings elucidate the power of emotion in the shopping brain. They also underline just how much the holiday shopping rush depends on exactly the sort of psychological combustion that, by helping to inflate the housing bubble, derailed the U.S. economy in the first place.
With all the opportunities to eat and drink and spend too much, the holidays are a notoriously stiff test of human discipline—many people stagger into the new year feeling that they have overindulged in one way or another. Some have more self-control than others, of course, but according to psychologists who study the trait, the human species is not blessed with much of it. In many cases, overwhelming the willpower of the typical human being can be almost comically easy—a pleasant surprise for retailers, perhaps, if discouraging for the rest of us.
Baba Shiv, a Stanford University marketing professor, has looked at how "cognitive load"—the amount of mental energy a task requires—relates to willpower. In one study, Shiv had subjects memorize a two-digit or seven-digit number, then offered them a snack: either a piece of chocolate cake or a bowl of fruit salad. The subjects who memorized the longer number were twice as likely to give in to temptation and take the cake. Shiv argues that the effort of carrying around five extra digits in their heads was enough to exhaust any resolve people had to go for the healthier option. Similarly, Roy Baumeister, a psychologist at Florida State University, has found that subjects forced to eat radishes while looking at a plate of freshly baked cookies do poorer on subsequent self-control tasks.
Baumeister likens self-control to a muscle: You can build it up over time, but it gets tired and weakens as it's used. Seeing willpower this way helps explain, among other things, the efficacy of repetition in advertising: If we're at all tempted by what is being offered, eventually we're liable to give in. It also helps explain why, having foregone a second helping of cookies and eggnog, we find ourselves online later that evening trolling the iTunes store.
In addition, needing to buy Lego sets for two nephews means we're likely to end up with a cartful of toys of our own. Ravi Dhar of the Yale School of Management, who has documented the phenomenon, calls it "the shopping momentum effect." There's a certain amount of guilt, he argues, that most people experience when spending money, but having opened our wallets the first time, with each additional purchase the guilt ebbs.
"Research has shown that just paying for something has some pain attached to it, even though you get something back in return," Dhar says. "But after you've bought the first item, the second item doesn't hurt as much."
And it turns out that nothing assuages the guilt of consumption like buying gifts. Psychologists call this the licensing effect. In essence, the idea is that doing something that feels virtuous (like buying someone else a present) makes us feel unconsciously entitled to do something self-indulgent (like buy ourselves a present, which can then make us feel that we need to do something virtuous again, like buy someone else a present). As the holidays draw closer, the process can feed on itself in a steady loop of spending.
Looming over all of these tendencies, though, is the issue of confidence. This year consumers are still skittish, and retailers are steeling themselves for a subdued holiday shopping season. The crowds will still come, but they'll look less like looters and more like, well, shoppers. As disappointed as this leaves jewelers and toy shop owners, most macroeconomists are encouraged to see households saving more and borrowing less. "People are realizing they have to start saving the old-fashioned way, which is by putting more coins in the cookie jar instead of going out and buying more cookies," says David Rosenberg, chief economist at investment firm Gluskin Sheff. Or, put another way, they're learning to look at the cookies, but eat the radishes.