The monsoon sale season is about to start. With signboards such as 60% off, 30% flat discount and buy- one-get-one-free outside showrooms of fast moving consumer goods, textile stores, supermarkets, mobile phone stores and even shops selling high-end products, it is impossible not to shop. However, before you head to the nearest mall, do the basic math of how the prices work and tricks stores employ to attract you.

Price anchoring: Shoppers still use original and list prices as a point of reference to understand the value of an item and how good the sale price is. Also, most shoppers are aware that stores regularly use fake, inflated prices to manipulate customers into thinking the inevitable – discounts are impressive. In other words, a 50% sale is the real price, while the original price mentioned on the product is just a mythical figure meant to give a false impression of the value of the item.

Look for alternatives: One of my clients Renu Kapoor wanted to buy a TV during a sale. She was tempted with the price of a 50-inch screen until she realised that the model was old and the features outdated. She finally decided to buy a smaller screen TV with the latest features, which fit in her budget. Researching various options in purchases is essential.

Double discounting: Studies have shown ways in which retailers can exploit consumers’ innumeracy. One is to befuddle them with double discounting. People are more likely to see a bargain in a product that has been reduced by 20%, and then by an additional 25%, than one which has been subject to an equivalent 40% reduction.

Attitude to discounting: Shoppers prefer getting something extra for free to something cheaper. The main reason is most people are not so good at fractions. Consumers often struggle to realise, for example, that a 50% increase in quantity is the same as a 33% discount in price. They overwhelmingly assume the former is better value. For instance, a company sold 73% more hand lotion when it was offered in a bonus pack than when it carried an equivalent discount.In another example, say a store gives you a sale offer—if you buy one nail polish for a regular price of 200, you can buy a second one for 40% off the regular price. Here, you save only 40 behind a bottle and are compelled to buy the second bottle to get this discount.

Context effect: Imagine that you have selected two pairs of shoes. You like both and they are both on discount. But one costs 3,999 and the other 1,999. Which one will you buy? Chances are you will go for the one that costs 1,999, 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.

Impulsive buying: These may include clearance sales, displays, promotions and advertisements which affect the desire to buy something on impulse. Shops, supermarkets and other retail outlets are designed in a way that the environment and visual aesthetics trigger consumers to make unplanned purchases. One common example is placement of items next to the cash counter.

Make sure you plan your shopping in advance. Ask yourself a series of questions before heading out—Is the purchase going to improve your life in some way? Is the purchase supposed to make you feel better? Avoid doing shopping for therapy. Don’t carry all your credit cards and avoid shopping in large groups and of course do the math.

Nisreen Mamaji is certified financial planner and founder, MoneyWorks Financial Advisors

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