Everyday Economics For People, Chapter 4: Bargain Shopping

Mental Heuristic #8: Never trust the seller’s price descriptions; define a good deal through your own price comparisons.

Moving along: let’s talk about finding bargains for those items on your buy list. There’s an old saying, “Who doesn’t love a good bargain?” The answer, which is somehow seldom mentioned, is “the seller.” You must keep this in mind whenever you are looking at a supposed “deal” being advertised prominently. If it is such a great deal, why are they in such a hurry to sell it to you at a bargain? And if this thing they are selling is so great, why aren’t they selling it at a higher price? You should cultivate an attitude of suspicion toward sellers, because they are out to make as much profit off of you as possible.

A lot of people are easily fooled. For instance, there was once a jewelry store that cut prices in one section by 50%, but accidentally labeled the wrong section with the “Prices have been reduced 50%” sign. Sales of those items with the sign went up dramatically as a result of this highly profitable mistake, whereas sales of the section that *actually did* have its prices slashed barely budged. People saw the sign and assumed that the item had at one point been selling for twice as much, so they perceived it as a bargain and purchased it thinking they had gotten a steal. The price hadn’t even changed. Nobody even *tried* to fool them. They just walked right into a trap that had been set accidentally. Imagine what stores can achieve when they *try* to trick people.

The important thing to realize here is that the price a store charges is not a bargain just because they could have charged more. For example, if I charge $100 for a disposable water bottle and then drop the price by 99%, you are not getting a great deal by purchasing a $1 water bottle. It’s a pretty normal deal. What makes it normal? The fact that you could find it at that same price in a lot of places. A bargain is when something is priced lower than the competitors, not just when it is less than it used to be.

A lot of stores also like to use a trick now where they offer, say, $5 off $25 or more. You might think that you are saving 5 dollars if you take advantage of this deal, but in many cases, the store just has higher prices than others with the same products, and so you just end up “saving” the markup that the fancier store charges everybody normally, and only if you stay close to the $25 total. The more you spend, the worse the “discount” gets.

A very similar trick is to say “X% off everything in the store!” What does that mean? It means nothing, because you don’t know what their prices were to begin with, or whether they will actually raise those prices up again “when the sale ends” or just keep them there, or drop them even further. Maybe they offer 20% off of everything, but their prices are normally 25% higher than some of their competition, meaning you’d still pay more for the same things, even with a huge “discount.” You can only tell by comparing against competitors.

Another trick stores like to use is bundling high profit items with low profit items, and selling them at a discount such that they are able to get a higher level of average profit from the sale of each low profit item. The most common example of this is fast food hamburger chains, which bundle fries, drinks, and sandwiches together at a discount compared with buying them all individually. They often lose a few cents on the burger itself, but accrue tremendous profit from selling fries for a couple of bucks when potatoes cost pennies purchased in bulk, and sodas for a couple of bucks when the syrup and water, again, cost a few cents per cup. In this way, the “value” meal is really a value for the restaurant more than the consumer, and the consumer only perceives it as a “deal” because they would have to overpay by even more for just the sodas and fries without the sandwich. This same concept applies with durable goods as well. Bundled goods are almost always bundled because some of that crap can’t be sold by itself, and they can only get people to think it’s a good value if it comes with something they actually want and has a “discount” from the normal sticker price for the stuff they wouldn’t otherwise buy. Unless you actually wanted all of the things in a bundle, it’s a bad deal to get the bundle; this is yet another psychological attack.

Another favored trick is the “Buy two, get one free!” attack. First of all, this is ambiguous. Did they mean get a third free, or did they mean get one of the two you bought for free? One would mean half off, and the other would mean 33% off. They probably mean “get a third free” because otherwise they don’t benefit from you taking two instead of one. But it makes it sound like you are getting half off! Tricky. It gets worse. They could also have said, “buy just one, you pay extra! You need to get three at once if you want the normal price.” In order to know whether you’re objectively getting anything discounted or just being forced to buy in bulk, you’ll have to compare their prices with competitors.

One of the most dangerous tricks of all is for a store to put out two or three brands or sizes, and price them all differently, such that one is clearly a better value than the others. This makes you feel, in the store, like you are getting some kind of bargain by taking the better value option. However, this is just the store competing against itself, and they will have rigged it so that they either profit or profit more based on your choice. For you to see whether or not you are getting a good value, you will have to compare across competing suppliers, not between products at the same supplier. Often, the best value from one supplier is worse than the worst value from another supplier.

Are you noticing a pattern here? Stores will try to set you up with a false choice between their own offerings, either across products or across time, as though they are their own competitors. They will try to convince you to make purchases from them based on the fact that they can offer lower prices than themselves, and if you don’t act now, they might just jack up the price again later. Do not be fooled by their shenanigans. Define a good deal on your own terms based on your budget and the spread of prices available on the market, and find the supplier who is offering what you want at the lowest price. Chances are, if it’s a really good deal for you, they aren’t advertising it much because they hardly profit at all. Never trust an advertiser’s description of their own pricing.

Reiteration:

#1: Never pay for consumption on credit

#2: Never rent something you are going to use every day

#3: Never buy something durable you will only use for a short period

#4: Never pay more if you could pay less

#5: Never pay for more than you need

#6: Never pay for somebody to do something you could do yourself

#7: Never buy anything you didn’t already plan to buy

#8: Never trust an advertiser’s description of their own prices

That’s it. Just 8 commandments — 20% easier to follow my rules than Moses’s, and with much faster results! That’s all it takes to be “good with money,” and if you establish these defaults, I guarantee that you will find yourself with record amounts of savings in an encouragingly short period of time.

Section I: Building Wealth Through Financial Habits

Chapter 1: Credit and Interest Chapter 2: Rent and Ownership Chapter 3: Budgeting & Reducing Expenses Chapter 4: Bargain Shopping Chapter 5: Optimizing How You Allocate Your Productive Time Section I Conclusion

Section II: Taking Advantage of Factors Bigger Than Oneself

Chapter 6: Crash Course In Microeconomics Chapter 7: Crash Couse in Macroeconomics Chapter 8: Why Businesses Sometimes Sell At A Loss Chapter 9: You, The Savvy Consumer Chapter 10: You, The Savvy Producer