Read a post from the NY Times: Sometimes, We Want Prices to Fool Us, where it details out something I’ve read about a couple of times in books that talk about the psychology of shopping.
Devoted coupon users like Ms. Fobes may be more frugal than the typical consumer.
But most shoppers, coupon collectors or not, want the thrill of getting a great deal, even if it’s an illusion.
In recent months, Penney recognized that human trait and backtracked on its pricing policy, offering coupons and running weekly sales again.
And it started marking up items to immediately mark them down for the appearance of a discount.
“But for someone like me, who’s always looking for a sale or a coupon — seeing that something is marked down 20 percent off, then being able to hand over the coupon to save, it just entices me,” she said. “It’s a rush.”
Basically, we WANT to feel like we’re getting a deal, even if we aren’t.
RETAILERS MARK UP PRICES TO MARK THEM DOWN
This is a very common practice, and done at J. C. Penney, but also at The Bay. I’ve noticed that most of their prices are overpriced (in shopping comparisons), but then they offer a “25% off” deal that makes you think that you’re getting it for cheaper.
Even before big sales (Black Friday, Boxing Day, etc), they mark up prices and then do a fake mark down to make us feel like we’re getting a deal.
RETAILERS KNOW WE WANT A DEAL BUT CAN’T DO MATH
It’s commonly known that we get tricked when math comes into play.
BUY ONE GET THE SECOND FOR HALF THE PRICE
…is easy to understand, but something more complicated where some math is involved like:
BUY ONE & GET THE SECOND ONE FOR 35% OFF, AND THE THIRD FOR 37% OFF
..makes it harder for us to understand which one is really the better deal because we suck at knowing how to multiply for percentages.
That’s probably a crappy example, but you know what I mean. When there are tiered percentages (much like tiered tax rates), we get confused as to when the discount is applied, to what amount and when.
For the record, this is how I do the calculation for sales:
If something is 37% off, I multiply the item by 63% to get the “real” price right away.
E.g. $10 item at 37% off
$10 x 0.63 = $6.30
Otherwise you are stuck doing the calculation the LONG way, which is to multiply $10 by 0.37 and then to subtract that discount from the original $10 price.
If I am doing a calculation for two or more items, I always get the final price for both, then divide it by 2 to see if it’s really a deal or not.
E.g. $10 item with the second one half off
$10 + $10 – $5 = $15
$15 / 2 = $7.50 each
So if I see a deal for the item at let’s say 30% off, or at $7 each, it’s clearly a better deal to buy them at 30% off than it is to buy one with the second half off.
THE REAL DEALS APPEAR AT AROUND THE 40% MARK
The Frugal Guru Guide says the following for clothes (although I reckon it works for everything):
If it says regular price, it’s really 40% more expensive than it should be.
If it says 30% off, it’s really regular price.
If it says 40% off, it’s really 14% off.
If it says 50% off, it’s really 37% off.
If it says 60% off, it’s really 43% off.
If it says 70% off, it’s really 57% off.
If it says 80% off, it’s really 71% off.
So you can see that when discounts start at 40%, then it’s a REAL deal, as in you’re finally getting something for the actual price.
I haven’t tested out this theory but it sounds correct based on what I have observed at retailers. It isn’t until something hits the final sale rack that it is really a good deal.
Otherwise, retailers are always giving “deals” at 20% off, 30%, or 40% off to make you think that you should get in and buy the items NOW before the deal disappears.
DO YOUR RESEARCH BEFOREHAND
Before I buy anything, I tend to do my research, especially for big ticket items.
I know what the price is at retail, then I figure out a discount that is acceptable to me, consider any sales taxes, and whatever other accessories or bonuses I get with the deal.
I also keep a price chart for things I buy often such as certain vitamins or creams.
I don’t bother keeping track of things I don’t plan on buying again, but without a price chart, I’ll never remember what things cost.