You are at your local mall shopping for a sweater for your dad’s birthday. Ever find yourself wishing you had a calculator? How fast can you figure out what 25% off of $52.00 is? Would you make your “decision to purchase” faster if the seller just said “$13.00 off these sweaters today?” Hint: 25% of $52.00 is $13.00!
We all know how important “presentation” is in our daily life. Most of us would be willing to pay a little more for the exact same “eggs over easy with ham and hash browns” when it is served on a china plate with stainless utensils as opposed to service on a paper plate with a plastic fork! Same breakfast – different presentation. In his book, Jonah Berger, author of Contagious, explores the subtle ways that the same information in his posting “Fuzzy Math: What Makes Something Seem Like A Good Deal?”, presented differently, can influence consumer purchases. He talks about something called “the Rule of 100” as a marketing concept which basically says that if a product costs less than $100, a “percentage discount” seems larger than a stated “dollar amount” discount. Thus, you might feel better about taking that 25% discount on the sweater for dad – instead of just $13 off!
In the book Personal Finance Turning Money Into Wealth, Principle 1: The Best Protection is Knowledge reminds us that advice on personal finance is everywhere. The same concepts are presented to us in different ways and it is important to understand the basics so you can look beyond the presentation in order to protect yourself and reach your financial goals. Principle 9: Mind Games, Your Financial Personality, and your Money explores some of the same ideas that Mr. Berger puts forth in Contagion. We call it “mind games” he calls it “fuzzy math” – either way, if you understand what is going on you can control your reaction and make an informed decision. Your future might depend on it!
Class Discussion Questions:
1. Mr. Berger’s “Rule of 100” also says that if something is priced “over $100, absolute discounts seem larger than percentage ones.” Do you agree? Think of some examples.
2. Do you find that you make purchase decisions based on: Choice? Emotion? Or Habit? Give an example of each.