Given the fact that the economy is on the tip of everyone’s mind these days, it’s no surprise to see books about economics and psychology, such as The Black Swan and Follow the Money, on the best seller lists these days. Economics enrollment is up at colleges, and economists are enjoying a new fame (and sometimes notoriety), with figures like Timothy Geithner, Ben Bernanke, John Maynard Keynes and Adam Smith becoming commonplace coffeehouse conversation topics.
In Virginia Postrel’s lastest column in The Atlantic, The Gift-Card Economy, she discusses the interesting psychology and economics behind the happiness, spending habits and perceived value of gift cards. New social research has shown that while people may think that they would enjoy a gift card without an expiration date, in reality, they are actually happier with gift cards with a limited time frame. Sure, it makes total sense that people will tend to procrastinate to avoid unpleasant things, but behavioral economists theorize that without a deadline, people will also put off doing things that actually will make them happier. It is this same reasoning that explains why so many city dwellers never take the time to see any of the “touristy” sights in their own cities. Usually only under the artificial time impetus of an out-of-town visitor do they ever venture out and see the sights that are only a few minutes away from them.
That said, the lessons that we learn from studying these behavioral economics cases are not just pedantically interesting, they can also be quite practical. The article has a few wonderful suggestions:
For every $500 spent, a customer might get a $50 gift card good for a two-week window starting a week later. Alternatively, customers who regularly buy clothes but not accessories might be offered gift cards good only for purses or shoes, or buyers in the women’s department might get cards for the men’s department. Two local businesses could even cooperate by, for instance, offering restaurant diners a $10 gift card at a wine store for every $100 they spend on meals.
The deadlines get shoppers into stores, the tiered promotions encourage them to stretch their spending a bit, and the incentive system provides a justification.
Armed with this research, you can make sure that your promotions are structured in a way that makes your customers happier and encourages them to spend more at your business. That’s a win-win in anyone’s book.
