It is common for some stores to offer discounts on the maximum retail price (MRP). Such stores, needless to say, are flooded with people wanting to buy their monthly groceries cheaper.
Should you visit such stores or should you just buy your monthly supplies from the neighbourhood department store at the MRP? Unless you travel and rarely find the time to shop, chances are you will visit the discount stores to buy your monthly groceries. Why? If you are typical consumer, you will derive great pleasure from bargains. So, it is highly likely that you will navigate your car through the city traffic to avail the discount.
But will you take the same effort to buy, say, a consumer durable such as a TV or a washing machine? Unless the discount is significant, you will settle for an electronics store in your neighbourhood. That is, you will drive 10 km to get Rs 500 discount on your groceries but you will not take the same effort to save Rs 500 on your new LED TV. Why? Suppose your monthly groceries total Rs 5,000. You have saved 10 per cent of the cost due to your efforts. But Rs 500 on an LED TV is insignificant. You, therefore, are not compelled to go to a store in a different neighbourhood that sells at a lower price.
Of course, you may argue that the LED TV is a one-time purchase while your grocery shopping is a monthly chore.
True, it is. But each time you visit the store, you spend the time and the effort which may not be worthwhile.
The problem is that we do not view our purchase decisions unemotionally, using an excel sheet. If we do, Rs 500 is the same, whether it is saved on monthly groceries or on an LED TV. And if you think it was not worth the effort for the TV, it should not be worth the effort for the grocery purchase either!
Economists would recommend that you spend more time searching for discounts on high-value items such as LED TV, vacation and car.
You save more and your efforts are not required every month! Yet, most of us are unlikely to do that. Why? Buying an LED TV or a car is more complicated than buying groceries. With many features to compare, you may buy a car that you fancy and not necessarily one that is value for money! On the other hand, if you want breakfast cereal, you may prefer Kellogg's or General Mills. And all you have to do is visit a store that sells these at lower-than-MRP!
(The author is the founder of Navera Consulting. He can be reached at email@example.com)