Walla are not suckers (Photo: official website, Walla system!)
Despite the Ministry of Economy's efforts to lower the cost of living by opening the market for import products, a year after the implementation of the move, it is evident that this move, in which Israeli society pinned high hopes, did not lead to the desired result. The obvious question is why? Why does the Israeli consumer still feel that the struggle with the cost of living is still long? There are many possible answers to this question, but not everything is only in the hands of the government, and the behavior of the Israeli consumer plays a significant part in the prolonged price increases.
The psychological characteristics of the Israeli consumer
Dr. Willie Abraham. "Due to the security situation, conduct in all sectors of life is like 'eat and drink because tomorrow we will die.' Accordingly, the Israeli consumer tends to pursue immediate gratification."
In general terms, the Israeli consumer can be characterized as loyal to brands, afraid of missing opportunities (FOMO), and in the same breath as having difficulty delaying gratification. Our loyalty to brands is the ultimate goal of any company. Our loyalty not only motivates us to choose the same brand over and over again, but also somewhat reduces our sensitivity to price changes. The result is that we are willing to pay more for a brand even if objectively, it gives us less value for money.
The reason for purchasing these brands is most often emotional. For example, we consumed the brand in childhood and the consumption of the brand today brings back pleasant memories of that period. In some cases, for example in the fashion, automotive, and smartphone industries, it is meant to symbolize an existing social status or one that we aspire to. These characteristics are expressed in a significant number of consumers and different personality types, with studies pointing to significant intergenerational differences between Generation Z and Generation Y.
Loyalty to well-known brands makes it difficult for new and unknown brands to enter the Israeli market. Despite the fact that in the past year dozens of new brands in the field of nutrition have appeared in the Israeli market, the Israeli consumer is in no hurry to adopt them and give up familiar brands, which he consumes, in many cases, out of habit.
Studies point to the fear of missing opportunities (FOMO) as a psychological motivation that explains why we purchase products we don't really need. The phenomenon is expressed in unplanned purchases we make when visiting the mall, the supermarket, the explosion, or when surfing the Internet because of promotions to which we have been exposed. The reason for the purchase is psychological and it gives satisfaction stemming from the thought that "I beat the system" or "I will buy now because maybe such a bargain price I will not find at another time or place". This phenomenon is quite surprising because, subconsciously at least, we know that soon there will be a holiday or the end of the season and prices will drop again.
Another possible explanation for why prices are not falling is the impulsivity and inability to delay gratification, which is very characteristic of the Israeli consumer. Some of our shopping is done unplanned and that's natural. At the same time, planning in advance shopping for holidays, birthdays, events, etc. can save quite a bit of money for the consumer and the Israeli family. Planning these types of purchases in advance allows for a more thorough examination of alternatives between different suppliers and finding a more attractive alternative.
Impulsivity can also be attributed to the fact that we live in a country affected by security threats, where the cloud of war and the next operation is constantly hovering – a situation that contributes to the feeling of the need to survive and make the most of life, because who knows what will happen tomorrow. The phenomenon manifests itself in a wide range of areas. Conduct in all sectors of life is tantamount to "eat and drink because tomorrow we will die" and accordingly the Israeli consumer tends to pursue immediate gratification.
Is this the reason why prices in the economy continue to soar, despite the Ministry of Economy's efforts to lower the cost of living? Partly yes. When the Israeli consumer continues to purchase the brands he is used to buying from the largest companies in the economy, they have no interest in lowering prices in order to be more competitive. As long as imports are not perceived as a significant market share by large companies, they will not feel pressured to lower prices.
Another reason why prices are not falling, but only rising, is that importers do not always pass on the decline in their spending to the consumer. Importers may benefit from import relief in the short term, but in the long run it may damage their reputation for taking advantage of the tax benefits for personal gain.
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So what can the Israeli consumer do to combat the cost of living?
Avoiding impulsive purchases will not only prevent us from buying a product or brand at an unattractive price, but will also prevent us from buying products we don't really need. Consumers around the world spend hundreds and thousands of dollars each year on products they use or wear once a year at best. At worst, they are thrown into the boydam or garbage can.
Unlike consumers in Europe and the United States, Israeli consumers do not tend to boycott brands or products. It may take a change in perception and consciousness to narrow this gap, since with the help of public pressure and economic boycotts, consumers all over the world have succeeded in changing the policies of companies and brands, there are quite a few successful examples of this.
In 2015, Pepsi stopped using aspartame as a sweetener in Diet Pepsi and other products due to consumer requests to abandon the artificial sweetener. In July 2018, Ivanka Trump shut down her fashion brand after consumer boycotts following the election of her father Donald Trump as president in November 2016. At the time, Nordstrom announced that it would stop selling Ivanka Trump's merchandise at its stores, citing a 66 percent drop in sales of the brand's products from the previous year.
A consumer boycott will usually succeed in changing companies' policies by applying pressure in street demonstrations and on social media. However, if the goal is to hurt a company's or brand's profits over time, the chances of success will be significantly lower. It is very difficult to maintain a significant consumer boycott for a long period of time, especially when the variety of substitutes for the product being boycotted is meager, as in the case of Angel Bakery's supervised bread.
In addition, the intensity and effectiveness of boycotts varies with the type of population. It is easier to organize or maintain a boycott among the ultra-Orthodox population because of its cultural characteristics. Haredi society is characterized by collectivism and acceptance of authority. A leader's instruction is sacred, and no one will act against it, even if it comes at a heavy personal cost. This is in contrast to secular society, where the characteristics of individualism are more pronounced and participants in the boycott will cease the act of boycott as soon as there is a personal cost.
With all the goodwill and no matter how much pressure we exert, the bottom line is that the State of Israel is one of the most expensive countries in the world. The only thing that will bring down prices significantly and lower the cost of living is opening the market to real competition. When several chains that supposedly compete with each other are owned by one family, it can never be a truly competitive market.
Dr. Willi Avraham is Head of the Department of Technology Marketing at Sapir Academic College and an expert in consumer behavior.
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