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Losing Money with a Money Back Guarantee

Posted by Carrie Rattle on Jan 27, 2015 4:50:35 PM

Sometimes companies that offer Money Back Guarantees are just great companies committed to customer satisfaction.  L.L. Bean is a great example of this – accepting returns years later if goods do not last as long as expected.  And then, there are other companies that play on the perception that a Money Back Guarantee means the product is good. Let’s talk about how you can end up losing from this assumption.

There’s a decision-making process our brain sometimes goes through called cognitive dissonance.  It means if you’re deciding on a purchase and two pieces of information about the product conflict with each other, sometimes your mind reconciles the information you’re processing to justify your purchase decision. 

 Cognitive Dissonance and the Dot.com Bust 

Here’s a famous example.  Do you remember the Dot.com days when people invested in internet companies that hadn’t made a dime?  For years savvy investors assessed revenue or profits in a company before investing.  But lots of investors became crazed about getting into the next internet stock, throwing caution to the wind and learning nothing about them. To justify this behavior it was called the “new economy”, where analyzing revenue wasn’t needed for these new, special, internet companies.  Do you remember what happened?  Internet stocks plummeted when many failed to earn anything, and people lost a lot. Smart investors and new investors all got caught because they fell into cognitive dissonance. 

Good_Service_Guarantee

 A Product with a Guarantee Must be Good?

Sometimes our perception of a Money Back Guarantee will create cognitive dissonance too.  A guarantee should mean the product is great and the company is trustworthy.  But if the product in front of you is not the quality you expect, you now have two thoughts in conflict with each other.   Don’t buy the product just because there is a Satisfaction Guaranteed promise. Inertia will set in, and you may never get time to return it. You end up losing money. Some companies are actually applying this psychology of money and hoping that this will happen! 

 Buy the Product, not the Guarantee

This sounds like obvious advice, but we don't always do it.  Turn on your smart analytical brain and assess the product by itself. Trust your years of experience too. Assume the guarantee is only a final safety net should something accidentally break. Don’t part with your hard earned money unless the product is the very best you can get for your needs. Consider a Guarantee the cherry on top and not the reason to buy.

 

This behavior may be especially applicable to Protector (Aphrodite) and Retention (Persephone) money profiles.

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 Information shown is for illustrative purposes only and is not intended as investment, legal or tax planning advice. Please consult a financial adviser, attorney or tax specialist for advice specific to your financial situation. Behavioral Cents, LLC and any third parties listed, linked to or otherwise appearing in this message are separate and unaffiliated and are not responsible for each other’s products, services or policies

BehavioralCents.com is a web site for women focused on how the mind naturally drives money behaviors. We hope to inspire women to understand their own automatic and emotional reactions to money, and better prepare them for financial independence.  Thoughts always welcome: carrierattle@behavioralcents.com.

Topics: Retailer Psychology

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