Shoppers don't easily compute the real values of promotions.
Retailers and CPG continue to mask everyday price increases with smaller package sizes, fractional ounce content and uneven dollar amounts that shoppers find hard to compute.
While everyday prices rise—and they likely will again in 2013 due to the Midwest drought and other weather challenges—stores and brands push more promotions to convey value and retain shopper trips.
When they promote, they find that distraction works to their benefit—because, frankly, shoppers aren’t great at math. By using this tactic more often, retailers and CPG lead shoppers to more decisions that deliver extra profit to the stores and brands.
In a University of Minnesota School of Management study of shoppers’ attitudes towards discounting, people showed they’d rather receive something extra for free than something at a reduced price—because fractions throw them, according to The Economist’saccount of the research appearing in the Journal of Marketing.
The study showed a few examples of how people react to different pricing tactics:
• A 50% quantity increase equals a 33% price discount. Yet people bought 73% more hand lotion when it was part of a bonus pack rather than at an equivalent discount price.
• Loose coffee beans were priced with both 33% extra product or with a 33% price discount—and subjects saw these offers as equal, even though the price discount is a better deal.
• People also have trouble computing the true value of double discounts, the Economist account added. They perceive a bigger bargain in an item reduced by 20%, than another 25%, rather than a one-time straight 40% markdown.
This is, of course, just one aspect of complex pricing in an economy that has rocketed food costs to the top of many shoppers’ priority lists. People will get more for their money if they pay more attention to the unit-price labels at the shelf—if they will take the time to do so.