6 ways companies eat your budget

6 ways companies eat your budget

Businesses make products and services that we want to use.

In return, we pay to use those products and services.

But businesses are always under financial pressure – for survival, growth or gluttony – and this can blur the lines between providing value and squeezing profit.

To help you avoid giving businesses too much of your hard-earned cash, we’ve outlined 7 ways companies eat your budget. 

1. Subscription services

Remember the days of buying things outright, and then paying for what you use?

The telephone was a classic example:

  • Buy the sturdy phone outright
  • Pay to get it connected
  • Pay to use it for each individual call

But things have quickly changed and subscriptions are the norm. Rather than paying per use, you now probably subscribe to gyms, phones, internet, apps, food services, even flowers and books.

It’s great for business as it means a reliable, consistent cash flow.

But subscriptions will take a regular chunk out of your budget, so make sure you really need to sign up for the long-haul.

2. Smaller serving sizes

This one grinds my gears.

Everything is getting smaller. That 50 gram packet of chips is suddenly 40-45 grams – the 5-10 grams of missing sustenance replaced with 30 grams of additional air. Mars bars and other chocolates are mysteriously shrinking. Most drinks – particularly alcohol – used to come in bigger bottles than they do today. McDonalds and other mass-produced food chains gradually reduce the size of burgers over time.

 

Call in the detectives.

But the price doesn’t go down.

Call it inflation, call it downsizing, call it profiteering. At the end of the day it’s a quiet way for companies to improve maintain or increase margins without lifting prices, and give you less for your money.

This is a tough one to avoid, unless you boycott these products (when you notice they’ve cut the size) and choose their normally-sized competitor.

Partially related to this is the matter of waste. Smaller quantities often mean smaller packets, which potentially use more resources per item/gram/quantity than bulkier packets. In an age of increasing environmental friendliness, is there opportunity for clever companies to buck the trend?

3. Up-selling

Bought a new car recently?

The endless options will pretty quickly blow your budget. An additional safety pack (who doesn’t want to protect their family, right?), wheel pack, audio pack, cargo pack, sports pack, paint protection, and the rest, please.

Up-selling is the old psychological foot-in-the-door technique, where a great offer gets the customer to let their guard down, or open the proverbial door. The door is ajar just enough for you to sneak your foot in and keep the conversation going. As you hook them with your offer, you gradually bring in the additional-options cavalry.

Cut-price airlines are notorious for adding optional extras in baggage fees, cancellation fees, food fees, entertainment fees, booking fees, so that the final bill is far more than you intended.

New video games and mobile apps all seem to come with in-built purchase capability, where you can use real money to buy virtual credits, tools, and special features.

In all of these cases, you get interested by the relatively low initial costs, get addicted or hooked on the idea, and then part with more of your budget than you intended.

4. BOGOF (Buy one get one free)

I’m a sucker for a BOGOF.

Whenever I cruise the aisles of the supermarket and see my favourite item on a 2-for-1 sale… How could I say no?

But BOGOFs and other bulk buy discounts help suppliers increase their volume, get rid of excess stock, get access to new markets, and / or form usage habits in customers.

If BOGOFs compel you to buy something you don’t usually need, they eat in to your budget. If they get you to buy more of a staple you usually purchase anyway, be careful you don’t develop a habit of consuming more of the goods over time.

And keep an eye out for BOGOFs sneaky cousin – the buy-one-get-another-at-a-discount – as it will force you to spend more than you would have on one normally priced item.

 

5. Anchor pricing and social proof

The next few points explore some of the psychological factors that companies use to eat your budget.

Anchor pricing occurs when companies put a few prices side-by-side, knowing it has anchored your expectations.

For instance, what do you think when you see the following?

  • Was $250, Now $50
  • Valued at $250, Yours for just $50
  • Others paid $250, You pay $50

$50 seems like a bargain, because you’ve been anchored by the $250. Fifty bucks doesn’t seem like much when you consider something is ‘worth’ $250.

But it is still fifty bucks.

Anchor pricing also works across a product range. Say you are a business that wants to sell something for $100.

Which of these 2 offers would you give your customers?

  1. Buy now for $100
  2. Choose from:
    • $85 – light version with limited access
    • $100 – full version with unlimited access
    • $250 – extra full version with premium access

“If I’m going to buy, I should get the ‘unlimited access’ version! It’s only $15 more expensive than light, and does everything I need.

But the top level one is too expensive – I’m not made of money!”

The business only ever wanted you to buy the $100 version anyway, so they make the other pricing anchors less attractive.

Your decision is made.

Social proof refers to little bits of information that make a purchase decision less risky, because other people have done it too.

In addition to customer testimonials, reviews and user generated ratings, you’ll often see little sentences introduced to the sales process to make you more comfortable about opening your wallet.

  • “Most popular items …”
  • “Others also bought …”
  • “Over 10,000 customers trust …”
  • “12 others are watching this item …”

“Well, if all these other people are involved in the product, I probably should be too!”

We’d like to think we’ve evolved far beyond the ‘monkey-see-monkey-do’ of our genetic relatives, but put simply, we’re haven’t.

6. The power of defaults

You might notice an increasing proliferation of check boxes being checked by default.

That is because people often defer to defaults. If the decision becomes too hard, or if we are in a rush, we might leave it checked and find ourselves opted in for all manner of additional services and sales calls.

More often than not it helps a business grow their emailing list, but sometimes these defaults are inserted into the buying process, so make sure to check your check boxes, and uncheck if checked.

Watch out for the wording too. Sometimes a checked box means ‘Yes’ when you think it means ‘No’. Or vice versa.

How else are companies eating your budget?

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