On Why Being Poor Is Expensive.

I appreciated the response to my recent post on maximizing and satisficing mindsets.  So many of you had great comments and anecdotes to share.  This type of analytical tool—mindsets—seems to be of interest to marketers and researchers.  So, here’s another one: scarcity.
About a year ago I was presenting shopper insights research to a category management team from a retailer that serves low-income shoppers.  At one point, when I was describing shopper decision-making behaviors, a buyer said to one of the merchandisers, “our customers really are just stupid, aren’t they?  I guess that’s why they’re so poor.”  The merchandiser agreed.  I’ve replayed this scene repeatedly in my mind many times since, mainly because I remain so disappointed in my own reaction to this exchange—I didn’t say anything.  Maybe I was worried I could create an awkward situation, perhaps I didn’t want to jeopardize the relationship between the retailer and my client (an OTC manufacturer), maybe I was just too shocked to respond.  But I wish I had.  Because, the truth is, I knew that buyer was wrong.
Viewed from a distance, it’s easy to see low income individuals as making problematic, self-destructive decisions, such as poor adherence to medical regimens, bad time management, irrational financial choices, etc.  To a large extent, these behaviors are what perpetuate the cycle of poverty.  Similarly, people who are chronically pressed for time always seem to be behind, never able to catch up.
But low-income shoppers are NOT stupid.  Neither are they irrational.  Rather, their perceptions and behaviors are profoundly influenced by scarcity, and scarcity has its own logic.
Nearly all of us experience some sort of scarcity at some point in our lives.  There are seven general categories of resources for which we can experience shortages:
  • Money
  • Time
  • Physical space
  • Nutrition
  • Water
  • Allowable mistakes
  • Socialization
Somewhere along the line you’re almost certainly going to find yourself short of at least one of these: you’ll be out of cash, underfed, lonely – whatever – and that will change you.  You’ll see things differently than you would if you had these things in abundance.  In other words, you’ll be in a scarcity mindset.
Here are some things you need to know about the scarcity mindset:
  • It requires one to make constant, zero-sum tradeoffs—either you buy the big package of allergy medicine and get a great price per pill, or you buy the small package, pay a lot per pill, and have enough money for food this week. You can’t do both.  As the writer James Baldwin once observed, ‘being poor is expensive.’
  • It makes one highly sensitive to required resources—you know you only have 31 minutes to get your kids up, dressed, fed and off to school. The five minutes your daughter just told you she needs to finish her homework simply will not fit into the morning routine.
  • ‘Normal’ levels of scarcity are healthy; they enable focus and discipline. However, chronic, severe scarcity leads to tunnelingfocusing on the scarce resource to the exclusion of nearly everything else.  Neurosurgeons are under enormous pressure in the OR—they have very little time to complete a procedure, and absolutely cannot make a mistake.  As a result, they tend to hyper-focus on the task at hand to the exclusion of everything else—such as trying that cool new surgical instrument they’ve been hearing about.
  • Scarcity makes one less intelligent. Experimental psychologists quantify this effect at 13-14 IQ points, which can be the difference between average and gifted or average and deficient.  Behavioral scientists Sehdhil Mullainathan and Eldar Shafir (who have written a fantastic book about scarcity) famously demonstrated this while studying sugarcane farmers in India.  These farmers only get paid once a year, when they sell their harvested crop.  In the year that passes between harvests, testing shows their IQs drop substantially as they go from being rich to being poor.
  • Scarcity taxes cognitive capacity and executive control (the ability to rein in our impulses), significantly reducing both. Dieters, who are, by definition, deliberately undernourished, have been demonstrated to have difficulty evaluating food choices and resisting their cravings (no wonder they can’t lose weight).
All of this leads consistently to sacrificing the future for the present—in other words – we become our own worst enemies. Here are some key implications for marketers and researchers:
  • First of all, just think about scarcity. Ask yourself, is deprivation somehow influencing consumer perceptions and behaviors?  What resources are insufficient in consumers’ lives?
  • If you’re a marketer, do you need to account for scarcity in your brand communication? Your pricing and packaging?  Your promotional tactics?
  • If you’re a researcher, do you need to build this issue into your questionnaire or discussion guide? Getting people to talk about scarcity can be challenging.  They often have difficulty articulating what’s in short supply and how that affects them.  Personally, I’ve had good luck with sentence completion exercises like, “If I only had more ‘Of This’, I’d be able do to ‘More Of That’.  This provides a structure in which a research participant can describe scarcity and its results.
Scarcity is a powerful mindset.  It’s a lens that changes—and sometimes distorts—how people see things and behave.   If we don’t account for it when trying to understand attitudes, perceptions and actions, we’re missing a big part of the picture.
One final thought: there’s also such a thing as an abundance mindset.  It can cause just as much dysfunction in perceptions and decision-making as scarcity.  I’ve done a lot of research among high-net worth individuals, and they often seem to be every bit as irrational as low-income people, just in different ways.
Posted in Marketing History.