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Source link: http://archive.mises.org/11594/its-the-language-of-action-not-a-trick/

It’s the Language of Action, Not a Trick

February 3, 2010 by

People say that buy-one-get-one-half-off deals are a trick. In fact, it is in the best interest of the customers to be offered a deal that is convenient for mental calculation. FULL ARTICLE by Predrag Rajsic

{ 19 comments }

Brad February 3, 2010 at 8:52 am

It’s sound economics for those who can do relatively simple math, and it’s a trick for those who can’t. It’s what one brings to the table that dictates how one feels about being in control of a transaction or being tricked. The solution, of course, is to dumb everything down to the lowest common denominator by Force so that Equality rules. The only thing that should be opaque and serpentine is the Bureaucracy.

crmchl February 3, 2010 at 9:22 am

There is a regional Appliances/Mattresses/Furniture store near me that runs a “Buy something, get half of the price back to apply to anything else in the store.” So, for example, buy a TV for $1000 and get a $500 credit you can apply toward the purchase of anything else (of equal or greater cost).

The catch is that each item has two prices listed next to it. The $1000 TV is only priced at $1000 if you don’t intend to take advantage of their deal. The “Half back for something more” price is listed alongside the $1000, and is typically 50% more. So, the price becomes $1500. It means you get $750 back instead of what would have been $500. But, it makes the math more convoluted and definitely clouds judgment. Especially once you start using uneven/non-round numbers like $1733.

I wandered in once to check out the deal since I was looking for a TV anyway and figured a new chair to watch it from couldn’t hurt. Once I realized I needed a calculator to determine the discounts, I left and bought from an online wholesaler.

Toby February 3, 2010 at 1:04 pm

But why then do many retailers offer their products for prices ending with a nine, like, $ 599 instead of $ 600?
Isn’t the intention here to trick dumb customers into thinking they just bought the product for $ 500 instead of $ 600?

Mike February 3, 2010 at 2:53 pm

The $599 vs $600 thing is likely a trick of sorts. I don’t think anyone actually thinks they’re getting it for $599, but it’s probably an attempt to elicit a more positive immediate emotional reaction to seeing the leftmost number, which could influence the ultimate buying decision. It probably works from a statistical standpoint, judging from the fact that it is so common.

From a praxeological standpoint, there’s really nothing to say since praxeology doesn’t care about the psychological reasons behind one’s ordinal preferences.

In any case, the existence of this trick PROVES that WE MUST HAVE SOCIALISM!!!!11one

Mike February 3, 2010 at 2:56 pm

Oops, the second $599 in my last comment should be $500.

Staturemman February 3, 2010 at 3:32 pm

crmchl – great point… a deal that is too difficult to understand can just as likely make a customer leave. Time spent dissecting the deal being a marginal cost of course.

Toby- Mike is mostly correct, the 99 thing got started with the idea that seeing x99 sends a signal of the item being lesser priced. Gas stations were early adopters of this practice.

What is also interesting, is that everyone uses the x99 pricing model now so no seller is getting an advantage over anyone else in the minds of the buyer. people do the math… even kids get it.

Seattle March 5, 2010 at 11:24 pm

While I’m not prepared to site a source, the story I heard on that was so it would require the cashier to make change, thus opening the register and recording the sale, rather than simply pocketing the money for themselves and falsifying the inventory reports.

Outside Observer February 3, 2010 at 3:37 pm

There’s a side to marketing that hasn’t been mentioned yet. Very often with the buy-one-get-half-off-on-the-second deal the aim of the seller is to lure the buyer into purchasing a second item that costs less than the first item. The net savings for the buyer is then not 25 percent of the total cost.

Havvy February 3, 2010 at 3:44 pm

They might not have originally gone in placing the idea of having two of an object in their scale of values, but when the possibility of such enters their mind, they need to place it somewhere, and that somewhere can be above saving the money for another purchase.

greg February 3, 2010 at 3:46 pm

You should major in accounting and make this presentation to a group of accountants, they would grasp your good point.

The study of economics on the other hand is more about pyschology than basic percentages. There is more to marketing than just price. Why else would there be so many Snuggies in the world today!

Now, getting back to the manipulation of money supply, my favorite subject. This article goes further to explain why the government controls and creates money than any other article I have seen printed in this site.

Understand social human action and you understand economics.

Predrag February 3, 2010 at 6:11 pm

Thank you all for reading the article! I am glad it has created some interest and discussion.

Predrag February 3, 2010 at 7:10 pm

Outside Observer, that’s a good observation (and it was discussed in one previous, longer version of this article) but it doesn’t change the main point.

With respect to the .99 issue, that wasn’t the topic here.

Vanmind February 4, 2010 at 1:41 pm

Is it also true that the retailer gets to move more inventory and can (if they keep up the “half-off” deal) start demanding a better “volume discount” price from their wholesaler?

Depends on the product, I suppose.

Mundi February 4, 2010 at 8:01 pm

We shouldn’t also forget that its easier to buy two at $75 each (and giving the seller increased volume of sale), than it is to pass up someone selling at $100 and find someone selling at $75.

Forcing people to buy two is simply doubling the volume while keeping the market price the same – so you don’t loose customers.

Indeed I believe this is the main effect – this is why grocerie stores do it on items you would buy once per week but then buy two in one week – it gives them short term increased sales – from there point of view it better that you buy in advance.

I find the deminishing return theory to be only loosely applied here. Remeber you first would have to assume that he is willing to pay $100 for the first pair, why whould he, when he can go to another shop and get them for $75? The only factor here is convience/lazyness. You might as well buy 2, since you are not being over charged anyway, than waste your time finding another merchant.

Troy Doering February 7, 2010 at 12:58 pm

A lot of these ploys are marketing gimmicks. Some are designed to obscure the real price. others to confuse the consumer into spending more than the items are worth.

Predrag February 8, 2010 at 9:10 pm

Troy, it seems that you weren’t persuaded by the article.

EIS February 8, 2010 at 11:04 pm

Troy,

“Some are designed to obscure the real price”

The “real price.” Who decides this “real price,” you? Some people don’t realize that economics has come a long way since medieval Europe.

IFRS Courses March 3, 2010 at 4:06 am

As always, your writing makes for a great way to start the day. Thank you for sharing us with something to think about.

Regardless of whether the accounting community disagrees, you have to believe that the underlying premise of unified standards has merit.

The final outcome is anyone’s guess.

Predrag March 5, 2010 at 9:46 pm

That’s very nice to hear (read)!

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