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Are we really getting what we pay for?

Wealth psychology: Part 4 of a behavioural economics series.

When behavioural economists study the purchase decision-making process there is one element that tends to influence our final choice above all others – the idea of perceived value.

Whether it is value added benefits, ‘free’ benefits, add-ons or reduced initial fees, these sales and marketing tactics also influence investment decisions, even when the rationale behind these benefits aren’t clear.

While the human brain is truly wondrous in terms of its functionality and capabilities, it has limited computing power due to the volume of basic biological and physiological functions it governs every minute of every day. Fortunately it has developed clever shortcuts to help it cope with this limited amount of computing power, particularly in the modern age.

As an example, most people only tend to see an animal in the bush when it moves. That’s because our brains only use our finite computing power to process and analyse movement as closely analysing every tiny detail is not possible.

Unfortunately for consumers, marketers and salesmen have known about this common trait in the human psyche, which makes us inherently poor at making rational decisions, and they have exploited it. As we often tend to focus on the wrong elements or features of a product, which tends to result in poor decisions at the point of purchase, perceived value has become an essential marketing tool used to complement product innovation and pricing strategies to gain an advantage in our highly competitive marketplace.

Consider, for example, two similar consumer products:


Cell Phone 1

Cell Phone 2




Battery Life

18 hours

18 hours





5 Mega Pixel

5 Mega Pixel







Our brain quickly identifies that the only difference between the two offerings is the amount of storage offered, and that for a mere R250 we can get double the capacity. Clearly that must be the better option. Unfortunately our brain never stops to question whether we actually need 64GB of storage. In addition, even though it is only slightly cheaper, the concept of saving some money by selecting the cheaper option is seldom considered due to the power of ‘perceived value’. Worse still, very few of us ever stop to consider the product in its entirety and question whether it is actually worth R8000 at all.

This effect is amplified when some features are offered as ‘free’. Consider two financial products that are extremely complicated, rendering them largely incomprehensible. In these instances our final purchase decision is often swayed by a value-added offer, such as a ‘free’ gym membership, as this boosts the perceived value of a product, yet has nothing to do with the inherent or actual value of it. In these instances your brain disregards the product attributes that matter and basis the final purchase decision on the ‘deal’ you think you’re getting. You may therefore end up buying an inferior product due to clever marketing, or you may end up with a product or product attributes you don’t need but still pay for.

The fact that this happens is no accident as it is part of a calculated plan to influence your ultimate purchase decision. When this is applied to the financial industry, and long-term investments in particular, these seemingly insignificant decisions can have a huge impact on the actual value of an investment when it matures. Selecting long-term investment and retirement products based on value-adds and ‘free’ fringe benefits can often leave you with less than you initially expected or, worse still, less than you actually need to live comfortably.

The only way to get past this weaknesses as humans – our selection bias based on perceived value – is to filter out the frilly value-adds and concentrate on the actual product we’re selecting. Our final decision should address a clear need that we are trying to fulfil and our final decision should be devoid of emotion to avoid impulse purchase decisions that are swayed by perceived value.

If you are not able to thoroughly understand a product then you should get unbiased expert opinion or look elsewhere. Financial products needn’t be complicated, so you should therefore be wary of products that are too convoluted to understand or those that rely on perceived value to gain a competitive advantage. A good test is to try and explain a product to a spouse or friend before you buy it. As Albert Einstein once said: “If you can’t explain it simply, you don’t understand it well enough.”

Michael Field is Product Development Manager at FedGroup.



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Very interesting article and very well written.

We seldom realize that when we accept something as a “give-away” or bargain, we might not actually need it. And yet, somehow we convince ourselves as to why we actually need it.

I made this mistake when buying a new car. Shifting from my little student-sized car to a luxury sedan, I am now paying almost three times more in insurance and installments for something that I didn’t really need.

Sure, it has all the luxurious capabilities that one could ever want (and never use), but it was honestly not worth the buy.

Sadly, we only realise it after we have already fallen for the clever marketing tricks of salesmen who convince you and then wait foor you to convince yourself of your apparent “need”.

Most of the old order RA’s and insurance policies were sold on this very basis. Banks are doing their level best to cloud the publics view on interest rates and service fees. Gone are the days of simplicity most financial companies (medical aids as well) try and make their products complex as it heightens confusion, but in reality only leads to deception

A clever trick that also work wonders is when, as with grahamcr’s example of medical aids, they provide you with comparison charts for your convenience (to alleviate the confusion). But what this does is exactly as with the example above of the cellphone. You become aware of similar, but inherently superior products and feel dissonance if you were to select the clearly inferior product. This is specifically called the Decoy Effect.

Nice to see an article on this!

Hilton Tarrant has to read this article, before he goes on yet another tedious ‘FNB is the devil, disguised as a bank’ rant again, could do him a lot of good, and spare us his constant whinging.
That darn fear of missing out ensures we continue to indulge him though.

No, no. no. FNB is not the devil, disguised as a bank. I’ve banked with FNB for nearly 25 years. But, I have a fundamental problem with a bank aggressively selling customers on a product that is going to see dramatic reductions in the ‘value’ that is ‘offered’ barely a month later. One has to point this out and question the ethics of that.
Also, FNB knows how many Platinum customers they have and how many they are likely to net (from upgrades, switches). They know exactly how many of those customers travel. You’re telling me they didn’t do the maths on the demand for Slow Lounges at all? I’d be willing to bet there’s more than one spreadsheet or powerpoint that exists inside that organisation with an increase in users matched with a decrease in rewards over time.
And, embrace the FOMO!

To your point about Field’s piece: I’d also question how many of any bank’s customers (including FNB) actually “thoroughly understand the products” they’re using. My bet? Sub-5%, probably closer to 1%.

One could argue, that the reason the goalposts continue to shift is exactly because someone is doing the math, and the spreadsheets and PowerPoint slides you mention point towards an unsustainable situation.
My comment on your previous article aptly sums it all up (according to me, that is)

Demand and supply, if there is too much demand and too little supply, the product becomes a scarce commodity and it’s price goes up, or in this instance, there is just not enough to go around.

Is it a matter of questionable ethics ? perhaps partly so, but FNB is a revenue and profit seeking enterprise, they can’t help it they are dealing with a bunch of suckers (hope I’m allowed to say that)
Hilton, You are a hero (yes, you are) for trying to expose this ‘legal’ scam, but really now, like when buying any random product from your local supermarket, the onus is on everyone to see through the smoke, not realize the following day that the new tomato sauce bottle is actually half-full.

Human beings, and the human mind, by it’s very nature is always inclined to want the best, or as much as possible, rather than be restricted to what one needs or what is relatively satisfactory.

For example, every parent encourages their child to study hard and get the highest possible marks, not to just pass and get it over and done with.

Nobody aspires to just be ‘average’ or ‘ordinary’ and as a result, the mind is easily duped into believing that the more you get, the better off you are, even if, in the end, it turns out to be self defeating.
Our perceptions of value are underpinned by this simple fact, and this principle, is incorporated into the various facets of business and the financial industry.

End of comments.





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