Shoppers Losing Out on Bargains Due to Poor Math Skills, Says University of Miami Discounting Study

CORAL GABLES, Fla., Aug. 7, 2012 /PRNewswire-USNewswire/ -- Attention bargain shoppers, a new study just published in the Journal of Marketing says shoppers choose items where more product is offered for free (i.e., bonus packs) versus products with their price marked down, even if the mark-down is a better deal.  In fact, the study found 73 percent of shoppers bought more hand lotion when it was labeled "50 percent more" than when it was labeled "35 percent off," even though the discounted price is the better deal.  Why?  Poor math skills are to blame, say the authors. 

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The study looked at consumers' attitudes to discounting, specifically price discounts versus bonus packs, and found that shoppers tend to neglect base prices when offered bonus product or price discounts associated with percentages.  

"When faced with a scenario of converting percentages, most of us are helpless and simply guess when it comes to figuring out the better deal," said Michael Tsiros, chair and professor of marketing at the University of Miami School of Business Administration.  "It is clear from the study that shoppers often, and incorrectly, assume more product is better," added Tsiros, who conducted the research with Howard Marmorstein, an associate professor at the School and Allan Chen, associate professor at Texas A&M University, and Akshay Rao, professor at the University of Minnesota.

The researchers conducted a combination of lab studies and field surveys in a retail store and a mall, offering shoppers a series of promotions in the form of bonus packs versus price discounts. 

Key findings include:

• Shoppers do not take into account that making something cheaper by a certain percentage is a larger absolute change than increasing quantity by the same percentage. Instead, they choose the bigger number at face value.
• When offered the following deals on loose coffee beans, 33 percent extra for the same price or 33 percent off of the price, many studied viewed the two as equivalent though the discounted price is far better economically.
• The preference for bonus packs disappears when the percentages associated with the discount are less difficult to compare (e.g., 50 percent off is easily translated into 100 percent more). 

"Marketers could take this information and re-work their sales strategies and messages to focus more on bonus packs with odd numbers than easy-to-convert percentages or the more  typical percent-off type sales," said Tsiros.  "To avoid getting tricked, consumers should evaluate products in terms of unit pricing – how much they cost per pound or liter – and should pack a calculator to calculate them!"

About the University of Miami School of Business Administration
The University of Miami School of Business Administration is a leading business school, offering undergraduate business, full-time MBA, Executive MBA, MS, PhD and non-degree executive education programs. One of 12 colleges and schools at the University of Miami, the School is located in a major hub of international trade and commerce and acclaimed for the global orientation and diversity of its faculty, students and curriculum. The School delivers its programs at its main campus in Coral Gables as well as at locations across Florida and abroad. More information about the University of Miami School of Business Administration can be found at www.bus.miami.edu.

SOURCE University of Miami School of Business Administration

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