Despite a slight ease of inflation in April, the consumer price index remained elevated, showing a 3.4% increase compared to the previous year. Nevertheless, Americans are still actively spending, seeing as credit card debt reached $1.12 trillion in the first quarter, according to a report from the Federal Reserve Bank of New York.
In response to these market dynamics, retailers are ramping up their promotional activities. Strategies such as free shipping offers, “buy one, get one free” deals and order minimums are proving to be effective ways for companies to encourage consumer spending, a trend commonly known as “spaving.”
What is Spaving?
“The term ‘spaving’ means ‘spending’ and ‘saving,’” explains Coresight Research analyst Sunny Zheng. “It describes the phenomenon where consumers spend money under the belief that they are saving money, typically through promotions and deals.”
According to Zheng, the concept is built around the psychological appeal of getting more value for money spent, even if it means purchasing more items or spending more overall. Consumers love the idea that they’re saving money. Even if they have to add a few more items to their e-commerce cart in order to unlock free shipping, in their eyes it’s still a bargain because the shipping is free.
“Deals create a sense of getting more for less, making consumers feel they are making smarter financial decisions,” continues Zheng. “Then, we will likely see consumers making more bulk purchases or buying items not initially needed to maximize the benefits of the promotion.”
Different Promotional Strategies
In order for retailers to capitalize on this “spaving” trend, Zheng mentions some current promotional strategies that some brands are using:
- Expanded deal offerings, such as flash sales, loyalty rewards and multi-buy discounts.
- Personalized marketing through data analytics to offer targeted deals that resonate with individual consumer preferences.
- Enhanced online shopping experiences, such as improving e-commerce platforms with easy access to deals, seamless checkout processes and virtual try-ons to attract and retain customers.
Zheng suggests that a combination of personalized discounts and loyalty programs, such as Target’s gift cards and rewards program with personalized marketing, is highly effective in getting consumer retention.
“Adding value rather than cutting prices in promotional campaigns is also effective,” says John Mercer, head of research at Coresight Research. “This is best executed by the beauty industry, where ‘gift with purchase’ is a well established lever for premium beauty brands to run promotions without sacrificing price integrity and, so, brand value. Some other markets could probably take learnings from that resistance to simply discount, but the most direct relevance would be those with similar characteristics such as desirable, premium brands that shoppers are willing to pay for and where discounting can erode that willingness.”
The Future of Spaving
Zheng predicts that spaving tactics will continue for the rest of the year, “especially considering ongoing economic uncertainties and competitive retail environments.”
“Retailers will continue to leverage these strategies to attract budget-conscious consumers and maintain sales momentum,” she continues. “Additionally, holiday seasons and major shopping events such as Black Friday and Cyber Monday will likely see an intensification of these promotional activities.”
