Percent-off or not?

Walk into a grocery store and you see flashy deals for x percent off. It’s eye-catching to buy a deal but is it really.

Markups are what is added to the price of the goods. MSRP(Manufacturer Suggested Retail Price) is set so all parties from manufacturer to retailer make a profit. But would retailers sell below the MSRP?

For example, say there is a pencil that has an MSRP of $1. The consumer does not know that he sees a price of $1.25. Now sometimes the price stays at 1.25 and so the retailer makes a bit extra. Then the retailer at some points may have a “sale” for 20% off. It may seem like savings to consumers as it is likely to stand out, but let's do the math .80 * $1.25 = $1.

For those who want to do this mind trickery themselves, its the equation

where x is a number from 0 to 1. It really is a psychological feeling. The feel-good feeling that the shopper is having that they are winning at buying. But it doesn’t have to be MSRP. Instead of the 20%, the seller could just as easily put 10% off and would still make a profit. I call this the coupon effect. The seller could price it at $1.00 but they would not because the attractive feature of coupons attracts customers and sales.

To counter the coupon effect, shoppers should find the MSRP of a product before making a purchase and not falling prey to gullible deals. Compare the prices with other competitors with coupons priced in to find the best price for you.