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USA Real Estate Blog

Consumer inertia — how your brain is costing you money

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Chances are you’re one of the billions of people worldwide companies are preying on — yet you might not even realise it.

They’re taking advantage of an often overlooked tendency that we can all fall victim to — it’s called consumer inertia. People like to stick with the status quo, opt for default settings, and generally keep doing what they’re doing. It’s simpler, easier, hassle-free and low-risk.

There are inevitably times where our behaviour deviates from this general tendency. But we’re all prone to inertia every now and again — sometimes more often than we might realise.

For decades, clever marketers have been taking advantage of our nature and try to make us bust our budgets in at least two ways — default options and laziness. Don’t be offended — I’ve been guilty of it too, and it has cost me money!

Don’t always stick with pre-set options or defaults

If you’ve ever signed up to a new deal for electricity, health insurance, or even a new mobile phone plan, you might have noticed that you can be put on the ‘standard deal’.

You might even be told that this is the plan “that most people are on”. If lots of other people have it, then it must be good, right? Don’t be fooled by this sort of marketing.

Is the ‘standard deal’ really the one that best suits your needs, or which offers the most competitive option? Is the marketing material even telling you the truth at all — or is it just promoting the deal that’s most lucrative for the company rather than the customer?

Don’t take the risk.

Shop around. Ask questions. Make sure you always find out what alternatives are available — then weigh up the pros and cons of the different options.

Companies rely on our tendency to stick with the default (standard) option, knowing that we have a tendency not to change from it. But this can turn out costly if the default option has hidden fees, higher rates or is just overall a worse deal.

Continuing with the status quo might be easier, but is it more expensive?

We’re all about saving money by cutting back and ideally eliminating expenses. You can reduce some expenses by cutting back, others you can eliminate entirely if you think they’re unnecessary.

But you can’t avoid some expenses, like a home loan if you want to buy a house. As much as you want to, you can’t wish the bank away. So they lock you into 30 year loans, perhaps enticing you with introductory discount rates.

Once people sign-up to something — be it a big investment like a 30-year home loan, or even a shorter lease contract — we often get into the ‘set and forget’ mindset. We go with the flow of the status quo, sometimes year after year.

For example, many home-owners don’t shop around for a better deal once their loans revert back to a higher, often uncompetitive rate. And who ultimately profits? The banks — at your expense.

They know that you have other stuff going on in your life. Even if you know you’re on a worse deal than you can get, they know there’s a decent chance you’ll just put up and shut up.

So something we can all do is search for better deals. Just jump online and take a look at comparison websites. Or go on the internet, look at your options and pick up the telephone and call around. You might be pleasantly surprised by how much you can save simply by asking and trying to negotiate.

Another terrific example of consumer inertia is car insurance. Every year, your insurer will raise your premium and reduce your insurable amount. They’re hitting you with a double-whammy.

Unless you compare against the previous year’s policy, you might not even notice — the bill just arrives in the mail and unless you look closely at the fine-print, it’s easy not to notice the changes. And unless they hike the bill by a huge amount, many people will just accept it and move on.

This is a classic example of how sticking with the status quo can cost you money.

Beware introductory offers

So now that you’ve been warned of consumer inertia, you’re going to go look for better offers, right? You’re feeling ultra motivated to stick it to the companies that have taken advantage of you? Good.

You’ll find a better deal for your home loan or credit card, for instance — it smashes the opposition’s offers. The thing is, it’s just an introductory offer. You get 0.5% or even 1.0% off you home loan for 6 or 12 months. Then it reverts to a higher rate.

The company isn’t hiding that from you. They’re being transparent about it. Nothing dodgy or nefarious about it at all.

The problem is that in 6 or 12 months, consumer inertia can kick in again. It’s what these companies are counting on.

Those companies are hoping that you’ll be too distracted to notice that your rates have gone up, or that you’re too busy to be bothered to ask for a discount or shop around.

Don’t let them beat you! The reason why they profit from offering upfront discounts or competitive introductory rates is because they know they’ll win more often than not.

Sure, there will be some savvy customers who are an exception to the norm. After all, some people enjoy shopping around for better deals! But for many, the busyness of life takes over, forgetfulness kicks in, or it simply becomes too hard or confusing to find the best deal. So they stick with the status quo, year after year.

Don’t worry, they’ve tried it on us too

So we’re not talking about saving money on not spending money on something you don’t need. We’re talking about not spending more money on something you already get.

Take our real-world example — when our home insurance renewal notice arrived recently, we noticed that the premium had increased by a few hundred dollars. This was partly due to the insurer raising our insured amounts for home and contents.

But simply jumping online and getting a new quote — with the exact same insurer — showed that we could save $100! If we reverted back to our previously insured amounts, the savings were even greater. All it took was a quick phone call to the insurer, telling them we’d done a quote online that yielded a cheaper price, and voila — instant savings!

Again, comparison websites are fantastic here as a starting point. Every year when it comes time to renew insurance we look for a better deal.

Sure, it takes time and effort to shop around. It’s not always fun! But by avoiding consumer inertia, you’re better placed to minimise your expenses — and ultimately work towards your financial goals.

Sometimes, if you’re really lucky, you’ll even find that you can save compared to the previous year. And that is fun!



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