Double the Discount, Double the Savings?
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?
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.