Stephanie Fierman - Marketing Observations Grown Daily

Stephanie Fierman Is Pondering Holiday Gifts

Sunday November 08th 2009, 7:24 pm
Filed under: advertising,branding,loyalty marketing,market research,US economy

I knew it.

I knew it, I knew it, I knew it.

There was a bona fide reason that I used to react badly to – well – bad gifts. Despite my mother’s it’s-the-thought-that-counts coaching, and the annual ”You don’t have to actually wear it” rationale, I was powerless to resist the disappointment.

The whole thing’s a set-up.

Since 1993, Wharton economist Joel Waldfogel has been studying the value created (or not created) by holiday spending, and how we may react badly to gifts because we see the opportunity cost of not buying ourselves something we actually wanted. In his new book, Scroogenomics, Waldfogel tells us that, although warm and fuzzy U.S. folk gave $66 billion worth of holiday gifts in 2007, the value of recipients’ satisfaction is much lower: so low, in fact, that it actually created an “annual deadweight loss of $12 billion.”

Waldfogel estimates such “lost value” from student surveys he’s conducted at Princeton over many years. When a student is asked to (a) guess the value of a gift and (b) guess the same for items she purchased herself, she will almost inevitably underestimate the price the gift giver paid and overestimate the value of products she buys herself by 18%.

Amazing.

I completely understand the psychology of overestimating the value of something I might buy for myself because doing so helps reinforce my purchase decision. What cracks me up is how low our expectations of others are – and how accurate. The least “efficient” gifts, says Waldfogel tend to be from relatives who haven’t seen you in a long time (and so do not know your preferences).

So suck on that when the niece you haven’t seen for 11 years tells you she hates the color pink – while she’s holding the pink sweater you just gave her. Your goth niece just can’t help it: her reaction to your lame gift is bigger than both of you.

The only smart things to do are give gift cards (less tacky than cash) or overcome your embarrassment about not knowing her and email your niece to ask what she’d really want. She won’t assign as much value to the black nail polish, eyeshadow and lipstick as she would have had she bought them herself… but it’s a start.