In a previous article, the Paribus data team investigated how holiday shopping differs between rich and poor shoppers. We’ve also told real-life stories of poorer shoppers being discriminated against.
And after analyzing almost one million purchases made in the last three weeks, the data is clear: poorer shoppers are at least twice as likely to overpay on their holiday purchases.
In other words, poorer shoppers got scrooged this holiday season
Here’s what happened. We first compared post-Black-Friday shopping data from 10 of the poorest metro areas in the U.S. and compared it with data from 10 of the richest metro areas in the U.S. We left it up to the experts at Yahoo Finance to determine the ten wealthiest and ten poorest cities, based on metrics such as average income, poverty level, and employment levels.
In several areas the difference in spending between rich and poor is stark: wealthier shoppers are more than twice as likely to buy electronics, and they’re 12x more likely to spend on gift cards. In poor cities, spending on essentials like toiletries and food was double (40% vs. 20%) and spending on toys/games was 10x higher. It makes sense that wealthier shoppers would be more likely to purchase electronics and gift cards, since those items are generally more expensive than essentials and old-school holiday gifts like toys. And it follows that essentials would take a larger proportion of poorer shoppers’ purchases, and that poorer shoppers might use the holidays as a chance to spend a little more and stock up on essentials.
But the kicker? These essential items are far more likely to tank in price after purchase. The prices of essentials like toilet paper are constantly changing over the course of a month, week, or even a day.
The result? People buying more essential items (poorer shoppers) are empirically overpaying more. In fact, shoppers are over 4x more likely to overpay for essential items than for expensive electronics. And poorer shoppers are about 2x as likely to spend their money on essentials during the holidays. Taken together or apart (we performed both analyses), poorer shoppers are significantly more likely to be overpaying on their holiday purchases.
So what is it? Do these stores hate poor people?
Ok, that’s a leading question. Probably not (we did not reach out to their spokesmen, but we imagine that they would say “No”).
It’s more complicated than that. In fact, it’s many simple, but amazing quantitative pricing strategies at work (moving faster than most people can track). Consider what happened with Bounty’s Paper Towels last week. On December 14, thanks to its low price, the Bounty 12 Pack finally made it into the Top 10 Best Sellers in Paper Towels. It became shown & recommended on every competing paper towel page. Demand SURGED. And its high ranking created its own demand. So what does Amazon’s pricing algorithm do on December 15th?
Raise the price. Sure, raising the price could decrease demand by 5%. But profit margin might jump by 10%. That means more profit for retailers. If you’re a retailer, you capture this margin as long as you possibly can.
This pricing strategy works beautifully for essential goods — items where you still would keep buying even if the price goes up). It works beautifully on people who see “#1 Best Seller in Paper Towels,” stop their research there, and buy. It works on people less trained in financial planning. And most troublingly (as we noted above), it works best on categories of items that poorer shoppers spend more of their income on.
So what can shoppers do to avoid getting ripped off?
You can trade time for money. Spend time on price comparison (see services like pricegrabber or Camelcamelcamel), educate yourself on these pricing trends (Priceonomics or the Paribus Blog), or coupon hunt (Retailmenot or coupons.com). These strategies work, and the time commitment necessary is pretty minimal.
Or let us work to try to help you save both time and money. With enough data applied the right way, we can make it easier for all shoppers to avoid overpaying. That’s what we do at Paribus — automatically get you refunds whenever an item you’ve purchased drops in price.
Until then, these stories about income inequality that blew up in 2014 — they are not just a passing fad. They are real. And we will keep doing our best here to uncover the unexpected ways that these trends play out.