There is a psychological aspect to sales that even the thriftiest shoppers must learn to overcome. Here are three psychological ways that sales make a compelling case for consumers to buy, and how consumers can think about whether to buy something more logically. (The institutional sector offers an intellectual and financially rewarding alternative. Find out more in Do You Belong In Retail?)
In Pictures: 6 Ways To Save Money This Summer
- Buy One, Get One Discounts
"Buy one, get one" promotions, also known as BOGO deals, offer varying discounts as long as items are purchased in groups of two. The phrase seems most attractive when followed by "free," but it frequently simply applies a 50% discount to the items purchased.
Buy one, get one discounts can be useful for products you frequently consume. However, the allure of a discount or receiving something "free" can persuade you to buy a greater quantity than you need.
- The Real Deal: If you have to spend, then you are not getting anything for free. Aside from requiring you to spend, the discount always applies to the item of equal or lesser value. So, in order to feel like you are saving the greatest amount of money, theoretically you should pick two items that are relatively expensive and have very close prices. Even though this scenario can save you the most, it can require you to spend the most. (Find out how average investors are breaking into what was once reserved for the ultra rich, in Hedge Funds Go Retail.)
- Setting the Limit
Some sale prices are valid only for a limited number of items purchased. For instance, a certain brand of cookies may be on sale with the words "Limit six items per customer" underneath the sale price. Without the mention of six, buying six bags at once probably would not have crossed the average person's mind.
- The Real Deal: Setting a limit can make customers feel as if they are not maximizing the discount unless they buy up to the limit. In this case, you should ask yourself if you really need six bags of cookies and if they were not on sale would you buy them anyway. This is particularly important when dealing with perishable food items. After all, what good is a sale if you end up buying something that spoils before you can consume it?
- Spend This Much, Save This Many Coupons
These coupons are frequently advertised with tag lines such as "the more money you spend, the more money you save." For example, a "spend $50 get $10 off" coupon would allow you to purchase $50 worth of products for $40, representing a 20% discount.
Some stores offer these discounts in staggered amounts, for example, the next increment from the previous example could likely be "spend $100, get $20 off." If you spend exactly $100, then the discount is still 20%.
- The Real Deal: The more money you spend, the more money you spend. In this case, the percentage discount maxes out at 20. The moment you cross over a $50 increment, the percentage discount actually decreases, until you reach the next increment. Reaching the next increment requires you to spend more money.
This could be a good deal if you were originally planning to visit the store and spend at least $50. However, if the coupon was your only motivation to go to the store, then you will not save a penny. (Learn to spot a rotten investment before you get seduced by its sweet promise of profit, in Are Structured Retail Products Too Good To Be True?)
Retailers are in the business of selling. Special pricing and advertising can draw your attention and prompt you to think differently about a product, but ultimately you must decide whether to make a purchase. If you need to hold on to your money, take a proactive approach to shopping. Make a list first and try your best to stick to it, or else you may find yourself reacting to sales by filling up your cart while simultaneously emptying your wallet. (Hit the mall and shop for future investments. Find out more in Analyzing Retail Stocks.)
If you're still feeling uninformed, check out last week's business highlights in Water Cooler Finance: Auto Hope, Bubbling Oil and Obamanomics.