How Much do you Save in a Half-Off Sale?

I recently asked how much someone saved if they bought a shirt for $50 that was originally priced at $100. Sounds like a simple question, but you need to dig a little deeper to determine the answer.

The scenario involved Sam and Sadie shopping at Nordstrom. Sam saw a shirt he really liked. At $100, the thrifty Sam had no intention of buying it. Luckily Sadie noticed that the shirt was on sale for $50. This was a price Sam was willing to pay.

Only 19% of the respondents said that Sam saved 50% in the deal. Nearly half (47%) said that Sam saved nothing, while a third (34%) said "it depends."

 I'm in the "it depends" camp. Sam had no intention of buying the shirt at $100 -- it wasn't worth that much to him. If he would have paid $60 for the shirt, then Sam saved $10 by purchasing it for $50. If Sam only was willing to pay $50, he saved nothing.

The original price of $100 for the shirt is meaningless to Sam. The only thing the $100 price does is allow the store to "mark it down" significantly and make people feel that the price was cut by 50%. Would Sam have saved more if the store said it marked the shirt down from $200?

An article entitled "Why You Bought That Ugly Sweater" in the current The Atlantic magazine neatly summarizes the games stores play. "Stores have figured out how to manipulate us by over-pricing merchandise with the intention of later marking it down, knowing that (thanks to a cognitive bias psychologists refer to as 'anchoring') we will see the lowered price as a deal." A fun video on "sales math" can be found at https://www.youtube.com/watch?v=I_3kHURyv4I.

We all have our personal preferences with respect to the utility of different goods and services. When our desire to buy an item matches our perceived value, we've struck a decent deal. If we can purchase an item for less, we benefit even more. It's our personal preferences that set the appropriate benchmark for determining value, not the somewhat arbitrary price set by the store.

By the way, 58% of the respondents to the survey said that Michigan would beat Ohio State on November 28. Go Blue!


Words of Wisdom

You can't have everything. I mean where would you put it?  -- Steven Wright