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It doesn't add up, but shoppers are suckers for bonuses

A recent study in The Journal of Marketing shows that "buy one, get one free" promotions are more enticing to shoppers than, say, a 50-per-cent discount on a single item, even if that shopper doesn't need two of what's being promoted in the first place. In other words, bonuses are more attractive to shoppers than sales, even if they don't equal a better deal.

Why? Apparently, we're bad at simple math. Or just too lazy to do it.

Here is an example: A litre of water normally sells for $1, but if there is a promotion to drive sales, consumers would prefer to get 1.5 litres for $1, instead of a 33-per-cent discount in price. The extra 500 millilitres is a 50-per-cent bonus, which results in a new unit price of 67 cents a litre. On the other hand, a 33-per-cent discount on a $1 item means that item now costs 67 cents, and since we're still talking about 1 litre, the unit price is the same at 67 cents a litre. But the researchers found that in a case like this, offering a bonus generated a 73-per-cent increase in the amount of product sold, compared with offering a discount.

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The effect is so strong that even if you made the discount more advantageous than the amount of the bonus, consumers still preferred the bonus.

The fact that this research appears in a marketing journal, and that the results are so telling, could mean the age of discounts is coming to an end. If a company can move more product and increase profits by offering bonuses instead, why wouldn't it? Especially since we, the consumer, are apparently not likely to blink an eye.

Most people don't shop using unit-prices as our guide. I don't browse grocery store aisles with a calculator in hand, and I doubt you do either.

In fact, a lot of people don't even realize that many stores display unit pricing in (very) small type on shelf labels (look for the price, then look a bit harder for the unit price). You can compare two products of different quantities to see which is cheaper on a per-unit basis, and there's no math required. Yet few people actually pay attention to them. The next time you grocery shop, make a point of seeking them out – you might be surprised just how much more you pay for brand names compared with generic.

For instance, one brand name shaving cream retails at $2.99 for a 311-gram can, or 96 cents per 100 grams. A generic brand from the same store retails at $1.97 for 275 grams, or 72 cents per 100 grams. If you need 311 grams of shaving cream every two months, the total yearly cost would be $17.94 for the brand name, and $13.37 for the generic. That's a 25-per-cent savings. If you are disciplined about figuring out unit prices, the savings can quickly add up to hundreds of dollars a year.

If companies increasingly turn to bonuses rather than discounts to entice shoppers, it still pays to be able to parse the price, and see just what kind of deal you're getting.

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About the Author
Personal Finance columnist

Preet Banerjee is a consultant to the financial services industry. You can follow him on twitter at  @PreetBanerjee. You can find his conflict of interest disclosure on his website. More

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