Upselling – Part 3 – My Turn

(Continued from previous post)

My turn.  I place my t-shirts on the counter.  Having heard the dialogue before, I now know what is in store for me.  I begin to think about my answers…”how can I be polite? How do I not show my frustration with this process?  I know that she is required to do this…be nice…”

The salesperson asks, “Did you find everything alright?”  I respond, “Yes.”  My response is abrupt.  I dare not look her in the eyes.  I act disinterested, nonchalant even, hoping she’ll see that I don’t want to engage in conversation and thereby, just maybe, I can dissuade her from engaging me in the round of questions I know are sure to follow.

She starts to scan my items and I notice on the scanner that the t-shirts are coming up at $10 each.

Wait a minute…on the tag it says $16.50.  On the register it says  $10.  What…just…happened?  In my head, I begin to wonder if I should say anything?  Is it a mistake?  Is it wrong to not say anything? I can’t not say something, so I blurt out, “I thought those were $16.50?”  She responds as a matter-of-fact, “Oh, these are on sale, they’re $10 each. There should be a sign next to the shirts. Was it not there?”  “I don’t think so…” I reply, but I don’t remember at all if there was a sign next to the shirts.  I was so distracted by my own thoughts and anxieties that it’s possible an elephant could have walked through the store and I wouldn’t have noticed.  Figuring out all of the colors, doing all of the math, figuring out how many books I could have bought with the same money…what sign? I struggle for a minute, reflecting, was there a sign that I didn’t even notice?  I feel a little bit embarrassed, but then, it dawns on me – Hey! The t-shirts are $10 each!

With this information I begin running some numbers in my head.  A moment ago, I was prepared to pay approximately $115, but now, I’m looking at paying $70.  I have a dilemma.  I ask if we can stop the transaction because I’m mentally calculating, trying to figure out if I should get more shirts or just enjoy the “savings.”  I am having a hard time deciding what I should do.  I feel a cramp in my brain.  I’m no good at this stuff!  I feel so torn about what to do that I stare blankly at the green dots on the register that has my running total at $70. “Do you mind if I run back over and take a look at some more shirts?” I ask.  She replies, “Not a problem.” She smiles politely, knowingly, devilishly and I think for a moment as I move away I hear her laugh – the “we gotcha” sort of laugh.

When I first came into the stores, I picked out the shirts I wanted and then I made a direct line to the counter, head down.  I was a man on a mission.  Now, walking back to the shirt rack, I cautiously lift my head to look around and notice the signs that say “Select Items On Sale.”  Upon seeing the signs, I believe I can actually notice the dopamine showering my brain with yummy feelings, my tummy getting butterflies and on overall sense of excitement.  By the time I get back to the shirt rack, my head is spinning and I have reached a state of giddy-ness.  I notice that there was indeed a sign saying that the t-shirts were on sale for $10 each. How on earth is it possible that I missed the sign – it’s right in the middle of the rack? It’s huge!  I had to pass by it at least 6 times as I looked at the shirts and I never saw the damn sign!  But…there it is, and I say to myself, “Alright daddy-o, I can get some more!”

I convince myself, I came to the store knowing that I was going to spend around $100 so I might as well find 3 more shirts, you know? It’s almost like I’m playing with the house’s money so anything goes, right?  I spend more time reviewing my options, feeling the texture of the shirts, pulling them off the rack and holding them up to my body.  Really deliberating, considering my next move.  I decide on some shirts in colors that I wouldn’t ordinarily purchase, because somehow, this all feels like it’s extra or free or, I don’t know… it just doesn’t feel the same at all.

Heading back to the counter, I begin to tell myself what a good shopper I am! Feeling like a hunter with a prize kill, I swell up with pride.  I lift my head with confidence to view the newly conquered landscape and notice that the “Sale” signs are all over.  I make a mental note to myself that I, Shawn the Super Shopper,  might just have to come back and look at some of these amazing deals!

 

Upselling – Part 2 – The Transaction Before

(Cont’d from previous post)

7 Different shirts at $16.50 – I do the math in my head.  Ten times seven is 70, six times seven is 42, plus three and a half, that almost $115.  For t-shirts!  (but in my head, like my own internal Jedi Mind Trick “you will wear these t-shirts for the next 5 years” – I reply – “yes, I will wear these for 5 years – Dude, it’s okay to by the t-shirts!”) And as the internal dialogue continues, I amble to the counter to make my purchase.

I’m pretty good about not getting distracted between the items I need and where I have to pay.  I don’t look at any other items – straight line to the counter to pay, but there is one other man in front of me.  He is buying two shirts.  As the employee is doing all of the magic stuff she does to make the purchase ready, including taking off hangers, tags, and electronic gizmos, the man turns and looks at me – and I want to say it is a sheepish look, but perhaps I’m just projecting how I’m feeling.  It’s hard to tell at this point.  But I must say that he looks fairly stylish, perhaps even a bit dowdy.

Then, it happens.  I hear the employee, a small, younger woman, begin.   “Are you a member of our rewards program? Do you have our store credit card?  If you sign up today you can save 10% off of this purchase.”  I feel my heart beginning to beat a little bit faster because as I project into the very near future, she is going to be asking me those same questions and I am going to be forced to answer her.  I hate that she is going to ask me those questions, already.  I’m not sure why – I know that I don’t want to be a member of a rewards program and I know that I’m not signing up for a credit card.  But I also know that it is her job to ask – every. single. person.

The man in front of me casually denies her.  She uses a hand-held scanner to scan his two shirts – bleep…bleep…she doesn’t mention how much it will cost him, she just lets it show up on the screen.  The man dutifully takes out his wallet and hands over his credit (or debit) card.  And you would think that from this point it would be a quick and easy transaction… but then she asks him for his email address.  He pauses – I pause – we both think to ourselves about giving out the email address.  We both think, “What are you going to do with my email address?” But, then again, we know what they are going to do with our email address.

After a split second of reflection, or maybe lack thereof, he gives her his email address!  I can’t believe it – he actually gives her his email address!  Then we spend the next eternity as he spells out his email address while the employee scours and pecks at the keyboard. In my head, I’m like, “Dude, they are going to send you emails every six seconds for the rest of your life.  You will never escape them.  You are going to have to change your email account, because when you hit unsubscribe from their email, there will be seven hundred steps to actually unsubscribe and you’ll be so frustrated that you’ll give up!”  He turns his head over his shoulder with a sheepishly sad smile, and without saying a word, sends me this message, “I know.  I know.  I’m not exactly sure why I just did that.  Oh, Lord, what have I done.”  And he turns back to the register.

She proceeds to ask for his phone number and his zip code, which he gives her.  And just as I think I am going to witness the conclusion of this transaction, she asks if he would like to donate a dollar today for the children’s hospital victims of hurricane Xanadu refugee relocation soldiers project homeless food pantry heart disease school lunch backpack fund.

Silence.

I even think the store music has gone silent for this moment.

I think I can hear his heartbeat.

I know what’s going through his head.

He thinks, “No.”  But she stares at him and waits.  He thinks, “A dollar…ah jeez…”  I feel his pain and look at the ceiling so as not to witness the awkward pseudo confrontation playing out in front of me.  And after several seconds, he says, “sure.”  The employee doesn’t even blink, scans a little barcode on her register that adds a dollar to the purchase and finally she enters his payment by rapidly swiping his credit card back and forth.

As they exchange pleasantries, “Receipt with you or in the bag?” and “Have a nice day!” I wish to myself that I could make my purchase without being asked if I want anything else.  I wish for a totally silent transaction, if I were to be perfectly honest.   But I know that’s not what’s going to happen.  What’s going to happen next is a little game retailers like to play with consumers called “Upselling.”  Don’t be fooled for a minute – this is a well-crafted tactic that retailers employ to help liberate shoppers from their cash – and I know that I’m next.

 

The Pain of Paying from Dan Ariely

Here’s a short video from Dan Ariely about how we spend differently depending upon the form of payment we use.  If you are not familiar with Mr. Ariely’s work, you should definitely check him out.

Misbelief

Convenience and “The Tyranny of the Moment”

Often times, our hectic and busy lifestyles lead us to make financial decisions just so we don’t have to think or do any additional work.  It’s called convenience and it’s a big part of our cultural value system.  In fact, huge portions of our economy are based on our “need” for convenience.  Then, as we keep adding in more things to do and more places to see, we “need” more conveniences.

“The Tyranny of the Moment” is the idea that when you are so hectic and crazy in the current moment, you are unable to think about and plan for future moments. In these tyrannical moments, everything feels like an emergency and we begin living our life in a series of firefighting episodes.  And I don’t know about you, but when I’m firefighting, I begin to start using those justifications for the decisions I’m making.

So here’s a quick exercise to take a look at these two concepts:

 

1. Identify three of your most common convenience purchases.

2. Identify a time when you have felt so busy that you made a purchase just to keep things simple.

3. Identify a time when you acted out of alignment with your personal values just because you felt too busy or overwhelmed.

 

Being consistently caught up in “The Tyranny of the Moment” can lead to feeling stressed, anxious and tired, which causes poor decision-making and undermines our willpower.  It also typically leads us to rely heavily on convenient solutions – which are typically more expensive and less healthy for us – as opposed to those perfectly rational decisions. All told, this can be an incredible hindrance to people who are trying to develop economically or even those who are trying to live their lives in accordance with their values.

 

Rational Behavior Education and Your Budget

In the world of economics they have the concept of “Homo Econimicus” or “Economic Human.”   This concept indicates that humans are rational beings that act only in their best self-interest.  This is typically used to explain markets and economic theories but in most circles, especially the academic and professional/political circles, it is a quite predominant perception of how humans act in regards to their personal finances and economics.

Well, a lot of education on how people should behave has a very similar approach.  I call it the theory of “Rational Behavior Education.”  My theory on this is that most education is based on the idea that humans are totally rational and if provided with a good rationale as to why a behavior should be changed, the human will naturally see the benefit of such a change and quickly adapt the new behavior.

Let’s take smoking for instance.  We all know smoking is bad for human bodies.  But most education is focused on discussing the fact that it is bad for us, by telling us all of the negative side effects of smoking.  I was a pretty extreme smoker for over ten years and this is what people would tell me over and over, “Your lungs are black, your breath smells, it costs a lot of money, it makes your teeth yellow, it causes cancer, oh, and you could die.“  Now, I know at one point in time, people did need to be convinced that smoking did harm to their body, but that time is long gone.  We know it.  We have heard it for decades.  We know!  But if we were totally rational humans focused solely on our own best interest, we would see quite clearly that smoking is not good for our body, costs a lot of money, makes us smell (which could prevent potential mating possibilities, maybe), and make our teeth yellow, makes our clothes smell and so on.  We would see all of that and we would stop. But do you see the problem?  Yeah, we’re not rational.  Humans can be rational.  We can be unbelievably rational creatures.  We may be, perhaps, the most rational beings on this planet – maybe anywhere in the universe. But we are not ALWAYS rational.  And educational efforts about behaviors aimed solely at our rationality that neglects to touch on how irrationality and emotion plays a significant role in our behaviors will be minimally effective.

In the world of Rational Behavior Education, if we could just teach everyone how to create and manage a budget, a person’ personal financial life would be sunshine and happiness.  But telling people that smoking is bad for them and that they should budget their money is only occasionally, mildly effective.

 

Opportunity Cost

Opportunity Cost is a fancy schmancy term that is usually used in economics classes and it usually is applied to how people use their money.  But I have found that the concept applies equally as well to how we utilize our time, and in fact many people actually grasp the concept better by applying it to time.

The opportunity costs of a particular action are the benefits you could have received by taking an alternative action.  As I mentioned, opportunity cost is usually discussed in terms of money, so here’s what it might look like in an econ book. Imagine that you invest in a stock yielding 3% over the year.  By investing money in the stock, you give up the opportunity to invest in something else like, for instance, a risk-free government bond with a 7% return.  In this example, the opportunity costs are 4% (7% – 3%), the difference in return between the forgone investment and the chosen investment.  Blah, blah, blah – insert lots of additional economics jargon.  What does that mean to you?  Well it means that every time you make a decision to use your time or money one way, you can no longer use it for something else.  The cost is what you spent on the item; the opportunity cost is what you could no longer purchase with those funds. And I know you might be thinking, “Duh! That’s so obvious.” But believe me when I tell you that people often don’t really think about it this way – especially in their day-to-day decision-making.

Now, as I said, opportunity costs are usually discussed in terms of money, but I think the concept can be applied to our time and energy as well.  For example, if I work an 8-hour workday, take 30 minutes for lunch, and commute 30 minutes each way, that adds up to a total time cost of 9.5 hours.  Since that window of time is devoted to and taken up by work, the opportunity cost of working therefore includes everything else I am unable to do during those 9.5 hours.  Spending time with my children, preparing and eating a meal with my family, exercising or recreating with my friends, and watching a favorite television show with a loved one are all examples of the opportunity costs of working.  In order to work, I must give up the time that might otherwise be spent doing and benefitting from something else.  In either case, a choice between two options must be made and the benefits I could have achieved by choosing the alternative option, whether monetary or otherwise, are the opportunity costs.

For some people, this concept has a huge impact on how they see their resources flowing out of their possession. But even if this isn’t a big “Aha” moment, this little concept of opportunity cost, the fact that we have to give up one thing for another can cause us to squirm a little.  Let’s say that I really want that pizza, but I know I’m going to need that $15 for childcare in two days.  But I really want that pizza!  But I know I’m going to need to pay the childcare!  There is conflict, and that conflict leads to some squirming.  And in that squirming we find ourselves dealing with a little problem we discussed earlier.  This is where you might notice that we have Internal Inconsistencies with our time as well as our money.  I might justify what I have to give up by rationalizing my choice, like, “I’m just too tired to cook tonight.” Or maybe some mental bookkeeping, like “I’ll just pay a little less on my credit card bill this month.”

Opportunity Cost is something that is happening every time you make a choice.  It is not something to be eliminated, but rather to be aware  of to help you in your decision-making process.

 

Time Value of Expenses

How much time and energy, in terms of work hours, does it take you to pay for housing, transportation, food, health insurance, car insurance, or entertainment?  Do you know?  If you are like most people, you may have thought about this as it applies to some of your expenses.  Or not. In either case, I have found that when people begin to apply the following exercise to their expenses, they tend to see how or if their expenses are really in alignment with their values in an even deeper way than when they did the receipt exercise.

Here’s an example of how it works.  The other night I took my oldest son out to dinner and to see a movie.  We went to a nice little restaurant.  Not too expensive, but definitely not the “value meal” at the local fast food joint.  The total cost of the meal with tip was around $45.  Movie tickets for the two of us cost $24.  The “Value Package” snack we bought at the theater cost $15.  Total cost for the evening totaled $84.  Now if I’m making $10 per hour and the night out cost $84, then the time cost, in terms of work hours, for the evening out with my son was 8.4 hours.  Well, I know that I work approximately 8 hours each day and so the cost of the evening out was slightly over one of my work days.

In addition to being a good chunk of change, that’s a lot of time and energy. When we pay for rent, mortgage, dinner out, movies, or anything else for that matter, not only does money leave our possession, but so does the time and energy that money represents.  Whenever we spend money, we also spend our time and energy.  And like money, once that time and energy is spent, it cannot be used for anything else.

Of course, using the same example above, we could break out each expense separately as well.  The meal was $45.  If I divide that by $10 per hour I would see that the meal cost me 4.5 hours of work.  The movie was $24, divided by $10 per hour and I would see that the movie cost me 2.4 hours of work.

To calculate the time value of a particular expense, you take the amount of the expense and divide it by the hourly wage you listed above and you can figure out how many hours it takes to earn that expense.

Now, let’s take a different expense.  Say for example your food costs $250 per month and your hourly wage is $10/hour.  Divide $250 by $10 and you will see that it costs 25 hours of work time.  Of course, I’m using simple round numbers to demonstrate and your numbers might not be so simple and round.  No problem.  You can either do the exercise with your exact numbers using decimal points and all, or you can round up or down.  I’m not looking for perfect calculations – this is not a math class!  I just want you to get a better idea of how much of your work time is devoted to your expenses.

How Much Are We Really Spending

People typically think of rent or mortgages as monthly expenses since, after all, we pay those expenses on a monthly basis.  In actuality though, we are paying for every hour, every minute, every second, EVERY MOMENT, of every day. For example, if a typical month has 31 days and there are 24 hours in each day, then the number of hours in a typical month equals 744.  If my rent costs $1,000 per month, I accrue approximately $1.34 in rent per hour and approximately $32.26 per day.

Calculating rent, or mortgage, utilities, credit card bills, grocery bills, etc. down into an hourly or daily amount might not sound like a lot of fun, and my goal here is not to turn you into a human calculator or to persuade you to spend an exorbitant amount of time calculating every single one of your expenses in this way.  I simply want to raise awareness about how much money is really flowing out of your possession, so often without your awareness or knowledge, at any given hour or on any given day.

Time Value of Income

Attaching a monetary value to one’s time and energy, particularly in a work situation, is not uncommon.  Most people know how much money they earn per hour.  On several occasions in my life I have taken jobs that paid around $7.50 per hour.   That’s pretty black and white.  1 hour of my time and energy at work was worth $7.50.  On the other hand, salaried positions are slightly less black and white in terms of time value.  My first salaried position paid $28,000 per year.  The value of an hour of time in a salaried position depends on the number of hours worked during a particular year.  If, for example, in my salaried position, I worked 40 hours per week for 50 weeks, I would accrue 2,000 hours per year, and my hourly rate would be about $14 per hour.  In that case, 1 hour of my time and energy at work would be worth $14.  If however, I worked an extra hour per day for the same number of weeks, I would accrue 2,400 hours per year and my hourly rate would drop to $11.66.  In that case, 1 hour of my time and energy at work would be worth $11.66.

As I said, most people, even those who are salaried, have figured out how much money they earn per hour, but just in case you haven’t, or haven’t done it in a while, we’re going to take some time and go through this together.  But then, we are going to take it one step further.  I’m going to ask you to determine your wage by minute.  Most people have never done this exercise. However, the information that we learn by doing the wage by hour and the wage by minute exercise will be very useful in the exercises that will follow.

Please note, some of these figures that you come up with might not be totally accurate, don’t get hung up on that. The information will still be beneficial and the figures will be close enough for our purposes.  I’ll refer back to this exercise and some of the numbers we figure out here in later posts and exercises.

Okay, so here we go.

Wage by hour:

Begin by figuring out how much money you earn per hour.  For the purposes of this exercise, we will only use our “gross earnings.”

• If you earn an hourly wage, like $10 per hour, then this is easy.  Your time value for this exercise will be $10/hour.
• If you are salaried, then we recommend, for simplicity that you divide your yearly salary by 2 and then drop the zeros.  So it looks like this:

Example:

$24,000 per year divided by 2 = $12,000, then drop the last three numbers and you get $12.

Wage by minute:

This is a computation that very few people undertake.  But when we get ready to look at the time value of our  expenses, knowing our wage by minute can actually be very beneficial.

To figure out your Wage by minute, take your hourly wage and divide it by 60:

$10 per hour divided by 60 (minutes) = approx. 17 cents per minute.

 

So hang on to this information.  We’ll use it in some of the upcoming posts!

 

 

 

Perceptions of Income – Gross v Net

We need to take a moment to discuss your gross income versus your net income.   In case you don’t know, your “gross” income is the full amount of a source of income (like your paycheck) before taxes or any other deductions are taken out.  After they take the taxes and deductions out of your source of income, you receive what remains and this is referred to as “net” income.  As an example.  If your hourly wage is $10 per hour and you work 40 hours during the week, your gross pay is $400.  But when you receive your paycheck, you notice that it is only $350. That is because they have taken out all of the taxes.  The gross pay was $400, the net pay was $350. Pretty straightforward, right?

Okay, so this is where a lot of programs leave this information.  There is money that is “taken out” of your paycheck and you should know the difference between “gross” and “net.”  But there’s some important information that is being left out, and in my efforts to eliminate our tendency to DISCOUNT the value of anything, we need to look at this just a little bit longer and perhaps from a slightly different perspective.

First, it is very important that when we look at our hourly wage or salary that we give it the total value.  For instance, in the example above, you earned the full $400 and we want to recognize the full amount.  But what happens is we tend to focus only on the net income because that is what you are going to use to pay your bills.  There is a tendency to think of the money we didn’t receive as being “taken out” – which is only part of what happens.  That money is taken out, but it is used to pay for something.  That is to say that you are actually spending that money.  You are spending that money on a lot of things.  Some of it goes to pay for roads, police, military, libraries, schools.  Maybe some of it goes to pay for your health insurance or a retirement account.  Maybe some of it goes to child support.  Wherever this money goes, it is you that is spending it and we want to recognize that it is our money that is leaving our possession.

The point of this discussion is not to argue whether your tax money is being spent well, or what is fair or right, or who is to blame for anything.  The point is to illustrate that the money between “gross” and “net” is money that is spent on goods and services.  It is money that you earned and we do not want to DISCOUNT the value of those resources by not acknowledging them.   So, yes, the money is “taken out” but then it is paid to someone else.  It is not something that is happening to you, it is a process in which you are actively participating.

 

On the topic of needs, here’s a great blog from my dear friend Joanne.

What's In It for Me?

I have a motley crew of teacups, all stashed away in the sideboard.  Some are a mismatched group I inherited from my grandmother.  I also got a matched set of cups, saucers and luncheon plates from her but I never felt attachment to them so I donated them to my local thriftstore, where their sale would benefit people in need.  The set was definitely more valuable than the mismatched cups I kept.

These teacups are a part of me, even though I rarely use them.  My grandmother displayed them on shelves by the dining table, little sparks of color and elegance above the plain Midwestern fare we ate.  She knew I liked them, so she left them to me in her will, along with a hand-stitched tulip quilt from her youth in rural Nebraska.  She and I never felt comfortable in each other’s presence—I was the rebellious child and she…

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