I am finally preparing to make the new-car purchase that I talked about nearly a year ago. (What have I been doing for the past year? Saving money to buy the car with.) As I review the options, I have found myself falling into a common trap, one that the manufacturers of many consumer goods set deliberately.
I began by looking at the Civic and Mazda3, which are both very capable cars for about $18,000. Relatively easy on the wallet, as such things go (which is to say, not very). Then I felt a sudden and quite irrational urge for an SUV. Possibly because it finally sank in that I was going to be hauling my son around in this thing, possibly because the city has removed a section of the road from near my house, requiring me to drive over the rubble to make a left turn. Even at their best the streets here in Lane Closed Ahead, Texas make a 4×4 SUV seem more reasonable than you might think for the suburbs.
At any rate, the SUV I mentally latched onto (the Nissan XTerra; reliable, inexpensive — as such things go — and well-mannered both on and off the road) costs more than the above small sedans. About $2,500 more. Not all that much, really, when I’m already looking at spending eighteen or nineteen grand. Just a little bit more.
Then, not able to get past the inherent absurdity of driving a four-wheel drive truck around the city (despite the terrible roads), it occurred to me that about the same money would buy me a Civic Si, the zippy sport-sedan version. Nearly all the virtues of the standard Civic Sedan (though not frugal at the gas pump), but with gobs more horsepower available and much-improved handling. Just the thing for carving a bloody swatch through the LORD OF THE FLIES traffic environment in the DFW metromess.
Reading reviews on the Civic Si, though, shows surprisingly low performance numbers. The handling is indeed razor-sharp, but the accelerator punch is somewhat lacking (probably because Honda’s VTECH engines require you to, in technical terms, rev the shit out of them to get the best results). Well, I thought, I’m up over twenty-one grand; I think the Mazdaspeed Mazda3 is about at that price. It has more power on tap than the Civic Si, the handling is about as good, and the interior looks even nicer. It only comes in that ugly hatchback style, but let me see how much it is.
About $22,500. Just a little bit more….
Hmm. But the crash-test ratings on the Mazda3 still suck. Maybe the Honda Accord? The version with the V6 engine performs pretty well. It’s almost $26,000, though.
And that’s when I realized what I was doing.
I had run myself up more than $4,000 and climbing over my original target price with “It’s just a little bit more.”
Consumer products, whether cars, refrigerators, or MP3 players, all have their pricing structure set with modest intervals between the available options specifically to move you up the ladder to a higher-end product. Say, for example, that you’re looking for an iPod MP3 player. The iPod Shuffle holds 1GB of songs and costs $50. Not bad. A gigabyte is quite a bit of music and fifty bucks is pretty cheap. But wait; the Nano, which holds 4GB of songs, sells for $110. Four times the storage, for about twice the money. That’s a pretty good deal.
But wait, there’s more. The 8GB version of the Nano sells for $180. You can double your storage again — eight times the music of the Shuffle that you were first looking at — for about 65% more money. Spending just a little bit more gets you a lot more capacity.
Oh, but what’s this? The iPod Classic sells for $235 and it holds a whopping 80GB of music. That’s eighty times the capacity of the humble Shuffle that you first looked at. What a deal!
You’ve also talked yourself into spending nearly five times as much money. That may really be a good deal (I happen to own an iPod Classic), but if you went into the purchase only intending to spend fifty bucks you might find yourself looking at your credit card bill a few weeks later and wondering why it’s so high.
This is just an example (and the exact prices may have changed by the time you read this), but it illustrates the selling technique. The idea is to ease you up the price-ladder, teasing you along with enticing features that you can get for just a little bit more money.
Now, sometimes spending just a little bit more is worthwhile. If you can get a significantly better product for a small bump in price, and can afford the small bump in price, give it serious thought. But know when to stop. Bumping again from your new price threshold will almost certainly not get you the same kind of return on your investment. It’s not such a big deal when you’re talking about a hundred dollar music player, but it can be quite significant when you’re talking about a car or a house (when ‘just a little bit more’ can be tens of thousands of dollars).
Stick to your original budget if you can (you picked that number for a good reason, right?) but if you simply must bump it up ‘just a little bit more’ only bump once. As a rule of thumb, if the amount is significant stick to within 10-15% of your original budget. Go over that and you’re quite likely to go a LOT over. Grit your teeth, focus, and concentrate on moving the price down if at all possible, not up. Your bank balance will thank you.
Don’t take more than one step up the ladder. It’s a long one and you probably won’t like where it leads.
Now, if you will excuse me, I have to locate a four-door sedan with absolute reliability, impeccable crash-test results, excellent gas mileage, and thrilling performance, all for under $20,000.
Perhaps while I am at it I will cure cancer and bring about peace in the Middle East.
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