“Selling up” a common and costly practice when you’re shopping

There’s a belief among consumers that paying more gets you more. But that’s not necessarily true.

Let’s say you’re getting bids from contractors to do work at your home. Most people will get three bids. Those bids may come in at $5,500, $8,000 and $9,500. So what do people do? They go throw out the cheap guy, throw out the expensive guy and go with the quote in the middle. It’s like the Goldilocks and the Three Bears syndrome.

Similarly, when people go out to restaurants, they won’t order the lowest-cost red or white wine. They feel they have to step up…but not up to the splurge of the real expensive bottle!

Manufactures and retailers have learned how to play this game to maximize their profits and your expenditures. They call it “selling up.”

Real Simple magazine reports car makers and even watch makers do this all the time. For example, there will be a lead price car that gets you in the door at the dealership because it caught your eye in an ad. But that amazing price is only for the base model. So then they’ll try to up-sell you to a really fancy model, or at least one of several mid-priced versions.

The extremes in pricing exist to make you comfortable buying the middle.

The truth is with wine, watches, cars and contractors, the lowest cost option may actually be your best choice. There is no objective reason why the cheapest contractor can’t be good. What really matters are the references. Call those people up and go to see the work the contractor has done if possible.

The lead price base models in the car business typically accounts for 6% of the sales of that model. That’s where I want to be. There’s nothing wrong with being the person who takes advantage of an advertised item and buys the cheapest version that was intended to get people in the dealership.

The key thing to remember is don’t let your mind play tricks on you and convince you that more money equals a better product. Sometimes that may be true, but many times it’s not true at all.

Editor’s note: This segement originally aired Oct. 28, 2011