I’m Emma, TDA’s Editor – long-time reader, first-time weekend newsletter contributor.

This week, the Australian Competition and Consumer Commission (ACCC) accused Coles and Woolworths of unlawfully misleading customers through “discount pricing claims”. It got me thinking about the science behind sales, and how it can be used to influence customers.

While consumers are drawn to reduced prices in a cost-of-living crisis, our purchasing behaviours can also be influenced by psychological factors. This pull can be strong enough to a) convince you to buy something you don’t need, and b) delude you into thinking you’re somehow saving money (by spending it? Yep, checks out).

The latest Roy Morgan trust data tells us that Coles and Woolies are some of shoppers’ least trusted brands. Yet so many of us can't help but gravitate towards their “special buys”. So, what keeps drawing us in?

Coles and Woolworths control around two-thirds of the supermarket sector. In the 2023/24 financial year, Coles reported a net profit of $1.1 billion. Woolworths reported a $1.7 billion profit for the same period.

Meanwhile, food and household goods have become more expensive over the past two years, amid a wider pattern of growing inflation (rising prices).

With the supermarket industry at the centre of several ongoing inquiries into alleged price-gouging and anti-competitive behaviour, Coles and Woolworths are now facing legal action in the Federal Court.

The ACCC has launched separate proceedings related to Woolies’ “Prices Dropped” and Coles’ “Down Down” deals between 2021 and 2023. The retailers are accused of misleading customers across a range of around 500 staple items, from cereal to pet food, and sanitary products.

The ACCC argues Coles and Woolies breached consumer law through “price spiking” — when products are briefly made more expensive, before being “reduced” to a price that is more expensive or the same as before. For example, an item sold for $10 is increased to $15. The next month, it’s “reduced” to $12.

Woolworths said it's reviewing “the claims made by the ACCC” and remains “committed to offering many ways for customers to save at the checkout”.

Coles said it “intends to defend the proceedings.”

Dr Gavin Northey, senior lecturer in marketing at Griffith University, described the tactic as “brazen”. He said pricing strategies can have a powerful influence on the consumer.

“From a psychological perspective, the actual effect is known as an ‘anchoring effect’ where the consumer focuses on the original price, effectively making the reduced price look more appealing... Whatever the apparent discounted price is looks like a bargain.”

From a neuroscience perspective, Northey said several studies have analysed images that show the part of the brain linked to reward, “lights up like Christmas tree” when we buy something on sale.

Melbourne University Associate Professor in Marketing, Anish Nagpal, confirmed that sale prices activate the brain’s pleasure centre.

“The way we feel when we see a good deal is tied to our basic human nature and psychology”.

Nagpal said discounts get the neurons of our subconscious brain fired up, and this response “is pretty much out of our control”.

He also noted the lasting psychological impacts after we make a purchase. “We trick our brains into thinking… we got a good deal… We look for information that legitimises our purchase. We ignore information that is contrary to, or that lowers our happiness.

Nagpal notes there are several legitimate reasons why a supermarket might discount products, but there are plenty of “tricks of the trade”.

For supermarkets, those tactics range from colourful discount tags to the design of a store.

Northey says “The average supermarket is like a casino,” and these spaces are not designed for us to “have a relaxing time”.

“The average supermarket wants you to spend as much time as possible in there”. The longer you’re at the shops, “the more likely it is that you're going to buy things. Which is why milk is at the very back of the store. They want you to walk through everything else to get to the milk,” Gavin said.

Nagpal told me about something called “the left digit effect.” For example, when something is priced at $9.99 rather than $10. Although there’s no real price difference between the two values, it can make a deal look more attractive, “because we tend to read from left to right and nine is lower than 10.”

Font size on a price tag and merchandising tactics also play a role in the psychology of our purchasing decisions. Nagpal used Aldi as an example, where “everything is crowded” on shelves.

“The way the products are organised and put very close to each other signifies reduced prices… Sometimes that is real of course, and there are economic reasons for it, but it also plays into the psychology of it”.

Similarly, if retailers have products spread out, and fewer items on display, it creates a space that feels higher quality, which can trick us into thinking a higher price is justified.

Given the scale of these psychological factors, how do we avoid being ripped off?

Northey says a key issue is that many consumers have too much on their plate to avoid deceptive pricing tactics.

“Even though individuals might think they're knowledgeable about a product in the modern world, we're all busy, so we will often use situational cues like discount signs [to form] the basis of any product decision.”

Next time you feel overwhelmed at the supermarket, try and remember there are many external factors at play. Northey said it can be a disorienting experience, and that’s by design.

He recommends going to the supermarket with a list. A “goal-oriented” shop can “really reduce the potential to fall into the trap of… discount offers that might be available,” Northey said.

If there’s one thing I learned from putting this story together, consumer decision-making is far from straightforward. But, as Nagpal said, beware of any deal that “seems to good to be true”.

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