Sunday, January 02, 2011

Sale: Flat 80% discount

I was in a mall in Delhi the week after Diwali and observed that almost all the showrooms had displayed huge signs announcing “Sale: Flat discount of 80%”. Curious, I stepped into one of the shops and took a look at the shirts being sold. The price tags were in the range of Rs 1800-2500 for some unknown brands of dubious quality. Clearly, the prices had been marked up by 400% or so. I walked out in disgust.

This deception is a result of a vicious cycle created by buyers and sellers together. Buyers are more likely to buy a shirt when the price is calculated as Rs 400, from a price tag that reads ‘Rs 2000’ (less 80% discount) than when it honestly reads ‘Rs 400”. Everybody looks for a bargain all the time, and the sellers know this.

But if this trick is so obvious and so well known, why do sellers still resort to it? The principle at work is “You can fool a different set of people at different times” or “a sucker is born every minute.” There would be some buyers who would presume that the shoppers were getting rid of unsold inventory, post-Diwali, at throwaway prices. And the price tag of“Rs 2000” confers the stamp of good quality on the shirt, right?

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