How unfriendly prices can damage your wealth

Quickly now, at your local supermarket which is better value – 4 rolls of paper towels for £2.79 or 6 for £4.29?

Most people take some pride in being careful shoppers but it’s not easy when you have to do sums like that in your head (especially if you have a fretful toddler in tow).   These are what my wife, a chartered accountant, calls ‘unfriendly numbers’ meaning ones that don’t lend themselves to mental arithmetic.   

This is no accident;  you’re not supposed to compare them because unfriendly numbers and similar tricks are at the heart of the ‘trick and trap’ sales strategy now universally used by Big Retail.   The objective is to induce customers to overpay by confusing or misleading them about the price of items and, in particular, which about choices are best value.  

Although there are laws against misrepresentation Big Retail has discovered you can comply with the letter of the law while frustrating its purpose by exploiting psychological tricks.  These tricks don’t fool everyone all the time but they don’t have to.   It’s a matter of averages;  as long as they work for some people some of the time they serve their purpose and my guess is that they actually work for most people most of the time. 

Nor is it just supermarkets that resort to price confusion strategies;  it’s endemic in many sectors.  Did the banks selling worthless securitized sub-prime loans really want price transparency whereby their customers would have understood the real value of what they were buying?   Do you really understand your telephone bill?  (Do you think you are supposed to?)   Confusing customers about true value is one of the oldest tricks in the book.  

Just how effective this can be in the case of supermarkets was dramatically illustrated by the BBC’s Watchdog consumer program this last week (video – package begins at about 40 minutes).   They arranged for three couples to buy a list of just six items as cheaply as possible from a mocked-up supermarket stacked with retailing tricks taken from real life.   The cheapest it was possible to buy the list was just £11.96 but the three teams spent £14.52, £21.10 and £21.27 – equivalent to truly eye-watering premiums of 21%, 76% and 78% respectively over the best possible price.   While this obviously wasn’t a properly conducted scientific test it does show the effect of this chicanery is pretty huge.  Moreover, it’s reasonable to infer that it will disproportionately trap those lower down the social (and educational) scale.   

Watchdog’s package concludes with a spokesman from the British Retail Consortium (the lobby group for Big Retail) trying very unconvincingly to blame it all on ‘mistakes’.   The fact is that when your sales are in billions making just 1p more in every pound become hugely profitable and the supermarkets have a massive incentive to turn deceit  into a strategy.

Is it possible to estimate, however roughly, the scale of excess revenues garnered by the supermarkets?   Obviously not from Watchdog’s little test of the efficacy of ‘trick and trap’ which is, in any case, only one of many strategies employed.   However, we can get one estimate of how much cheaper supermarkets could be from Aldi and Lidl both of which claim to be around a third cheaper than the established competition.  Combine this with supermarket sales of around $90 billion and you get excess revenues of £30 billion – equivalent to a staggering £500 per annum for every person in the UK.

Is this a reasonable figure?  The supermarkets and their apologists would obviously say not but Im going to stick my neck out and say that, for all that it’s a bit approximate, I suspect it’s about right.   But even if it’s a substantial overestimate, it still dwarfs anything the government has yet come up with to help ordinary folk as opposed to bankers.  

Oligarchs or people: hopefully that will be the choice at the next election.

By the way, the answer to the question at the head of this post is that the 6-pack costs 2.2% more than the 4-pack on a per unit basis.

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One response to this post.

  1. […] and pack sizes.  This is a difficulty intentionally created by Big Retail – see for example here and […]

    Reply

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