BackDiscounts galore, but are they as good as they seem?
Mint Money guides you on how to evaluate discounts while shopping this sales season
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It’s that time of the year when advertisements of end of season sales bombard various media. You will find “attractive" offers at every store and tempting discounts. But don’t take the offers on face value—the discounts may not be that attractive after all. We decode five popular baits that are used to lure customers to discount-shop.
20%+25% off
Let’s assume that a store has two offers running in its footwear section. The first says 20% off plus an additional 25% off. The second has a flat 40% off. People are more likely to see a better bargain in double discounting. However, if you calculate, you will see that both the offers mean the same thing—a discount of 40%. For example, if a pair of shoes cost 1,000, you will first get a discount of 20% on the 1,000, which makes it 800. Then you will get 25% on the 800, which means a total discount of 400; or 40% of 1,000.
People tend to neglect base values when processing percentage change. Most shoppers will see the offer as 20 plus 25, which makes it a better deal than a flat 40. “Retailers play with customer psychology. Some customers may not understand the math at one glance and believe that the break up 20% and 25% is better than a flat 40% offer. Usually, companies try out both the discount structures to get an idea of which works better," said Vaibhav Garg, vice-president—marketing, Zopper.com, a product and price discovery website.
2,900 for 4,500-product
Let’s say a dress has a tag attached to it which says the original price was 4,500, but a buyer now has to pay only 2,900 for it. Behavioural economists say that consumers get blinded by the original price and assume that, in this case, they are saving 1,600. When a higher but credible reference price is given, the discount is more believable since the original price has not been tampered with much. “This is common practice; prices are first marked up and then brought down during the sale season," said Bharat Chhoda, assistant vice-president-research and advisory, ICICI Securities Ltd.
Context effect
Imagine that you have selected two bags—you like both and they are both on discount. But one costs 5,999 and the other 3,999. Which one will you buy? Chances are you will go for the one that costs 3,999, say experts in behavioural economics. This is because any product featured next to a higher-priced product will appear to be cheaper. But if you evaluate each separately, it may not be as good a deal as it looks. This is called context effect. The strategy is to place a high-priced decoy next to an often overpriced but “cheap" product which the vendor wants to push.
Zero-interest EMI
Such schemes are often attached to new gadgets. When companies offer zero-interest equated monthly instalments (EMIs), the retailers and manufacturers share the interest cost. Earlier, banks and manufacturers used to foot the cost, but in 2013, the Reserve Bank of India asked banks to discontinue such deals.
Also, the “0% EMI" offers will be on the market operating price and not the maximum retail price. Market operating price is the lowest price at which a retailer can sell a product and is set by the manufacturer. Such schemes also involve paperwork. You may have to provide salary slips, cancelled cheques, and identity proof. And the offer may not be open to everyone. Ask the store for a breakup of the total amount and the EMI that you will be paying, and about any extra charges such as processing fee. For instance, Urban Ladder, an online furniture store, has interest free options on products above 50,000. The buyer has to pay 10% as downpayment and a processing fee of 749.
VAT comes later
The value added tax (VAT) differs across various categories of products. Often, the discount is offered on a price that does not include VAT. For example, if a product costs 1,000 including tax of 12%, then a discount of 20% may be on 880 (1,000 minus the tax).
So, if you plan to make use of all the end of season sales, be smart and do the math.
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