Wednesday, May 23, 2007

Double the Discount, Double the Savings?

Not!

What is it about shopping that makes Americans so stupid? I've made so many impulsive buys, did the financing thing that sounded so sweet at the time, and purchased crap I didn't need.

It seems the retail world relies on our lack of common sense and basic math when we're in their stores.

Take "double discounts" for example. You go to the store for a great pair of shoes you really need. It's $50.00 with an immediate 25% discount, and then an additional 25% at the register. Sounds like a steal. Are you better off with that double discount or getting just a one-time discount of 45%?

Sitting there with your calculator, you might make the right decision. But put yourself at the store surrounded by bright signs and dwindling stock; it seems the 25% off the bat and the 25% at the register is the better deal. That's 50%, right?

WRONG.

With the double discount, the first 25% makes the price of your shoes $37.50. But the second discount at the register of 25% is taken off of that reduced price of $37.50, making the final price $28.13.

The one-time discount of 45% makes the final price $27.50.

A recent study titled "When Two and Two Does Not Equal Four," to be published in the Journal of Consumer Research, shows the retail business is counting on us not doing our math correctly. "When consumers have to deal with more than one percentage at a time, they make errors that can be costly," said Akshay Rao, professor of marketing at the University of Minnesota Carlson School of Management.

Most people see the example above and believe the double discount of 25% each comes out to 50% total off the price. That would make the price $25. But that incorrect perception is costly.

Not all double discounts are worse than the one time sale. 15% off those shoes on the floor and the additional 15% off at the register is actually better than a one-time discount of 25%. Whip out your calculator or get out the scratch paper and do the math yourself. However, that assumption that you're getting 30% total with the double discount is a major mistake.
Consumers are thinking they're getting better deals than they actually are - which means they spend more. But this "fuzzy math" is not just attributed to confused people at Wal-Mart. Lawmakers often miscalculate when dealing with multiple percentages. So stuff like budgets and setting standards are often screwed up.

What's the bottom line?

We be dum.

21 comments:

kim said...

Yeah. It's kind of hard to do on the fly I guess. I work retail and have to explain it to customers a lot. I end up just saying "well, it's roughly 50% because of the math" and leave it at that.

But America does the 99 cent thing too so...

David Amulet said...

Even worse ... many products sell MORE when they are priced HIGHER. Tourists perceive higher priced jewelry and artwork, for example, as higher quality--so some retailers have moved their prices up to sell more.

Wow.

-- david

stephanie said...

I knew it. Bastards.

goldennib said...

Consumers just need to stop buying so much junk.

meredith said...

plus, psychologically...getting 2 discounts sounds more appealing than one...that (among other reasons) is why i shop online.

Curare_Z said...

As long as its on sale, I'll buy it.

Just kidding. I'm the one that'll stand in the store for 20 minutes trying to calculate the exact price. That's why it's nice to have a calculator on my phone. :-)

The Egg said...

Even worse is when the great bargain is discounted a week later. Happened a few times. I never learn..

Haley-O said...

I assure you, us Canadian shoppers are NO different! Good thing I don't like shopping...except for books....

Haley-O said...

...and toys for the monkey, of course!

Bruce said...

The usual practice for these "sales" is that the regular price is actually jacked up, then reduced. That way, the stores are still making their money, and the consumer thinks she/he is getting a great deal.

Jenna Howard said...

This is why math is my nemesis.

Keshi said...

I buy what I WANT..I dun care how much it costs :) Wants need to be satisfied u know.

Keshi.

delmer said...

I have trouble with commercials that claim something is ten time less expensive than something else.

If it's 1 x less expensive, isn't it free?

So, at ten times less expensive, aren't they paying me?

ozymandiaz said...

our entire economic theory is stupid and irrational formulae of unsustainablitly, why should consumerism make sense
I used to work in a store that would increase the price on slow moving items and put big "SALE" signs on them and people would buy them like hotcakes (do people buy a lot of hotcakes?).

angel, jr. said...

This is why I don't like shopping!

Mr. Shife said...

This is why I let my wife do the shopping. She is way smarter than me.

Jamie Dawn said...

At Walmart, if something is 10 for $10, you get each item for $1, even if you buy less than 10.
At our local grocery store, they had several 10 for $10 sales going on, so I thought I could buy a couple of those items and get them for $1 each. NOPE. I ended up paying full price at the register.

Sales can be very tricky indeed!!

Percentages are REALLY tricky. You are so right about that. We be dum fer sur.

THE BLUEST BUTTERFLY said...

And if you get an employee discount...it is not as good as it sounds either.

Jim said...

so much for JCR being a top-tier scholarly journal.

lfoneta <-- the next big Salsa star

BrianAlt said...

I was a Math major in college. I know what 25% of 25% is.

But, yes, there's a disturbing number of stupid people out there.

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