Young Investor

Why we like bargains

B. Venkatesh | Updated on December 26, 2011

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Discounts offered by retail stores during festive season are a win-win strategy — it economically benefits the stores and, perhaps, emotionally rewards the customers. What drives us to load-up our shopping cart when we see such discounts?

Consider the discount that a book-store chain recently offered on its range of music CDs. Suppose the retail price for a music CD is Rs 500 but the discounted price is Rs150. You may not fancy the artist or have heard any of her songs, but you recognise a good deal when you see one. You, hence, buy the music CD.

Buying a product at a low price gives us immense joy, even though the utility or satisfaction we derive from it is a lot less. This is, perhaps, one reason why our cupboards are filled with bargain products that we hardly use. Ironically, we may not buy the same CD at a full price of Rs 150.

Bargain buys

Interestingly, bargain-buys give us even more pleasure when we believe we have some control on the price. Purchasing from street vendors, for instance, gives us more pleasure. That is, you may experience more satisfaction buying the music CD at Rs 150 from a street vendor than when you buy the same CD at a discounted price from the retailer. Why?

The street vendor is most likely to quote Rs 200 or more. You derive great satisfaction when you bargain for a product and eventually buy it a lower price. Being a price-taker at the retail store is less enjoyable than playing a role in price-setting at the street shop.

What if you later discover that the product you bought is not of the same quality as the one at the retail store? You are most likely to reconcile to two facts. One, you did not pay the full price of Rs 500. And, two, street vendor at an upscale location would have charged you more. So, your CD may not be of great value, but it is, perhaps, still a good deal!

(The author is the founder of Navera Consulting. He can be reached at enhancek@gmail.com)

Published on October 29, 2011

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