Saturday, January 5, 2008

Business Gimmick

Have you ever wondered if there is any difference to the retailers between:

(A) 50% discount; and

(B) Buy 1 free 1

If a pair of jeans originally sells for RM100, then in both cases above, the customer will end up buying the jeans at RM50 each. In (A) the RM100 is discounted by 50%, i.e. halved and therefore ends up at a cost of RM50. In (B) the customer pays RM100, but he gets 2 pairs of jeans, i.e. at RM50 each.

Therefore, in terms of unit price, there is no difference to the retailer. However, option (B) is preferable because the retailer gets to sell more jeans per customer. There is also some psychological element in the phrasing of the sentence. That word "free" has a great impact on a lot of people. Something which is "free" is more attractive than something which is not.

This is what we call business gimmick. A customer who has the intention to buy only one pair of jeans at RM50 is attracted to that word "free", and then ends up spending RM100—double the amount he had intended to spend in the first place. But of course some customers have the intention to buy 2 pairs of jeans anyway, in which case it's a win-win situation.

There are other types of business gimmicks. I remember being asked to draw a number from a box by a lady promoter in a supermarket some time ago. Out of curiosity, I drew a number. Then the promoter told me that I had won a great deal! I was entitled to win several electrical items at 50% discount. BUT! I had to buy some expensive useless stuff from the promoter first. So I told her to go fly kites.

These people are always out to catch the unwary customers. These deals quite frequently appear very good, but they almost always end up requiring a larger amount of money from the customers.

Now it seems that even schools are not spared from some sort of gimmickry. The Government, having considered the escalating living cost, has decided to waive school fees this year. Of course a lot of parents were happy with such announcement. But little did they know that they would end up paying more than before. Maybe we might as well opt to bring back the school fees, huh?

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