The Price is Right — Or is It?

The Wall Street Journal: “A simple mathematical error leads shoppers to make mistakes when evaluating offers that promise to save them money. Sometimes they inadvertently pick the priciest option. Sometimes they overestimate the benefit of a bargain. And sometimes they don’t recognize that competing promotions offer identical savings. The problem involves percentages.”

“Instead of comparing unit prices, shoppers tend to judge offers based on the size of the benefit. Getting 50% more of a product must be better than knocking 33% off its cost, right? Wrong. The savings are identical, but on the fly, even savvy shoppers make mistakes … Consider a pound of coffee beans that normally costs $15. If a shopper receives 50% more free, the price is $5 for each half-pound. A discount of 33% reduces the original cost to $10, which is also $5 per half-pound.”

“One of the most common ploys used to sway consumers is the double discount. A 40% discount on a $1,000 suit drops the price to $600. Marking the suit down twice, first by 20% and then by an additional 25% decreases the cost to $800 before shrinking it to $600. The deals are identical, but the double discount feels more generous … To test responses to offers of discounts or bonuses along with shoppers’ ability (or willingness) to calculate percentage change, .. several experiments revealed that consumers generally favor product bonuses over price discounts, reduced quantities over increased prices and double discounts over single discounts.”

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