Stores Profit On Customers Bad Math Skills
So how are your math skills? Retail stores are betting that they aren’t very good and are making a lot of money because of it. They have figured out that most Americans can’t figure out “double discounts” and customers are choosing them even when it’s too their detriment. In recent department store studies which will be published in the Journal of Consumer Research, stores that used double discounts were able to increase the number of people who purchased the item, their sales volume, their revenue and their profit.
Here’s a quick test to see how you would do. Would you rather have a 25% discount or a 15% off with an additional 15% off at the register? How about a 45% discount with 25% off and additional 25% off at the register? If you are up on your math skills, you should have picked the 15% – 15% in the first example, but the 45% off in the second example. Confused? Your not alone.
Most people who lack math skills look at the two percentages and add them together. On the 15% and 15% they assume they are getting 30% off which is better than 25% and with the 25% and 25% off they assume they are getting 50% off which is better than 45%. In reality, the first 15% is taken off the item on the floor and then an additional 15% is taken off at the cash register. For example, if the purchase was for $100, the price on the floor would be $85 and when the person took it to the register they would receive an additional 15% off of $85. This comes to $72.25 which is a better price than the $75 they would have had to pay for the 25% off, but not as good as the $70 they thought they were getting.
In the other example, the item would have been $75 on the retail shop floor with an additional 25% taken off at the register. This would’ve made the price of the item $56.25 instead of the $55 it would have been at 45% discount. Both of these are still much more expensive than the 50% discount that customers believe they are getting.
What this all adds up to is customers believing that they are receiving bigger discounts than they actually are. The study indicates that this is encouraging them to spend more money on more items with the result being the store making more profit.
It’s a good bet that you will see more and more double discounts in the future as stores build their profits on the lack of American’s math skills, so if your math skill aren’t strong, you may want to start bring a calculator.
It may be true that one discount is better than another, but I have yet to see a store that does it that way. No store I know of offers a choice of discounts, it’s just there, and that’s the discount.
I know that I’m not getting as good a deal, but what am I going to do about it if I need the product?