Why 10 for $10 at the Grocery Store Might Bust Your Budget
As an example, let's look at two end-of-aisle advertised specials on sale at two different grocery stores. For the sake of argument, let's say you have cream cheese on your list. At Store A, you find you can buy 10 packages of cream cheese for $10. At Store Z, cream cheese is advertised for $1.29 a package -- the fine print says you don't have to buy 10 packages to get the special price. Given these choices, you should shop at Store A, right?
Maybe not.According to John T. Gourville, a professor of marketing at Harvard Business School, you're more likely to buy 10 packages at Store A whether you needed 10 packages or two, whereas at Store Z, you would buy only the number of packages you really needed.
"Many people buy the amount, or buy in increments, that are advertised - with five for $5, they end up buying five boxes of couscous or whatever it happens to be," he told The New York Times. Even if you don't need -- and won't use-- the cream cheese before its expiration date, you might buy those 10 packages based on the power of suggestion alone.
In negotiations class in business school, you learn how powerful suggestion can be when it comes to numbers and the subconscious recognition of value, so much so that the person who throws out the first number is seen to be at a disadvantage. Here's what I mean: If you start the negotiation for a bookshelf at $5, you'll never know I might have been willing to pay $20. Likewise, if I offer $15 for that bookshelf, I wouldn't have guessed you would have been thrilled to get $5.
Advertised group pricing works in a similar way, setting a subconscious quantity benchmark. Five loaves of bread for $10? Oh, so this must be how everyone else buys their bread, you might think without even realizing it. Or, I can't afford $10; I'll just get three, when in fact you only meant to buy one or two loaves.
When we shop, we tend to focus only on the price we pay per unit to the exclusion of the quantity we buy. Why does quantity matter? When you buy too many of something, you run a few financial risks. The first -- and most obvious -- is spoilage. Ten pounds of apples for $10 could, if you're not extremely good at managing your fresh produce, get soft and mealy before they're all eaten.
But more subtle and bedeviling is the opportunity cost. OK, so you weren't going to invest that $6 in apples or $8 in cream cheese in a strong mutual fund. But what if you overspend at the grocery store thanks to all those high-quantity, low-unit-cost deals, and then you don't have quite enough money for your credit card bill (you can pay it a little late, right?) or your cable bill (you'll catch up next month, you tell yourself)? A late fee here, a penalty rate there, an overdraft fee now and again, and buying that extra bread suddenly doesn't seem like such a smart idea.
So what's a frugal consumer to do? Should you shop at the same old stores with the discount and restrain yourself, buying only what's needed? Or should you skip them due to your collective subconscious weaknesses and pay a little more per unit?
I tried to ask Gourville, the professor quoted in The New York Times because it seemed like a great topic that deserved some serious academic inspection, but he hadn't read any research about the topic. It will have to be my supposition.
So here's what I think: Get honest with yourself. Can you really overcome the power of suggestion? No? Then stick with the stores that only advertise prices per item, maybe a grocery co-op or an independent grocery chain you trust.
If you think you're strong, then just arm yourself with a shopping list and a shopping budget each time you shop and make sure you're sticking to both the list and the budget, more or less. Be strong -- don't turn away from screaming deals on things you use up fast in your home. But be sensible, and don't bite off more fresh produce and perishables than you can chew.
And use this example as a teaching moment: Those end-of-aisle displays are rarely there for your delight and convenience. They're designed to help the stores make more money. Just make sure it isn't at your expense.