Why Discounted Prices Are Better Than Getting “extra” Products for Free
If you’ve ever wandered down the cereal aisle, you’re probably used to seeing promotions like “20% More Free!” While our brains interpret this as a 20% discount, actually getting a 20% discount would be better.
As The Atlantic explains, buyers are pretty poor at math. “[X amount] extra!” this is a common tactic used to memorize a number. The problem is that we don’t know how to translate unit prices on the fly. Using coffee as an example, the site explains that getting an extra X% for free is worse than getting the same percentage of the total cost:
You walk into Starbucks and you see two offers for a cup of coffee. The first deal offers 33% extra coffee. The second is 33% of the regular price. What’s better?
“They are roughly equal!” You would say if you were like the students who participated in a new study published in the Journal of Marketing. And you are wrong. The deals seem to be equivalent, but in reality a 33% discount is the same as a 50% increase in quantity. Math time: Let’s say a standard coffee costs $ 1 for 3 quarts ($ 0.33 per quart). The first trade gives you 4 quarts for $ 1 ($ 0.25 per quart), and the second gives you 3 quarts for 66 cents ($ 0.22 per quart).
Of course, stores are reluctant to offer both for the same product. Either you will see a 33% discount or an extra 33% free. However, competing products can. If one box of cereal is offering a discount and the other is offering a large box at the regular price, the discount is likely to be better. Unless the box is larger by a significant amount.
This sales method is doubly difficult as it convinces you that you need to buy more than you could otherwise buy. While most of us know that one of the best ways to save money in the store is to buy only what you need, getting a little more for free seems like a better option. However, it may not really save you money if you don’t count.
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