Consumers Don't Do the Math on Discounts, Study Finds
If you think that getting an extra half-size lotion for free is better than getting lotion that is 35 percent cheaper, you're wrong. Those two discounts are roughly equivalent. But a new study found that consumers prefer the first discount.
Because many consumers seem to be lousy at comparing percentage changes, they prefer to get an extra product for free than to buy a product at a cheaper price.
That's according to a study by Akshay Rao, a marketing professor at the University of Minnesota; Haipeng "Allan" Chen, a marketing professor at Texas A&M University; and Howard Marmorstein and Michael Tsiros, marketing professors at the University of Miami. (Hat tip: the Economist.)
The researchers found that shoppers frequently neglect base values when comparing a discount in price (50 percent off, for example) to an increase in quantity (50 percent more product). Shoppers don't take into account that making something cheaper by a certain percentage is a larger absolute change than increasing quantity by the same percentage. Instead, they choose the bigger number at face value.
To avoid getting ripped off, it's better to evaluate products in terms of unit pricing -- how much they cost per pound or liter -- and even bring a calculator to calculate and compare unit prices.
The best long-term method for saving money is to wait until there are fewer consumers eager to buy what you want. For example, you should buy clothes for a certain season at least two to three months after the season starts. At the end of the holiday shopping season, especially, stores push discounts to try to get rid of their inventory.