On first glance, it seems that supermarkets are offering consumers great deals these days. Many do save us money and the majority of consumers manage the task of judging the value of a deal. However, our new research shows confusion among some consumers about how much they're saving through price promotions.
Picture: Rowan Peter
One in four consumers misjudge the value of the deals offered and the most vulnerable shoppers are most likely to be left out of pocket.
Our analysis across 23 product categories in five retail chains of the UK and the US shows that between 30-50% of supermarket sales in developed countries are bought on some form of deal. With such high prevalence, it is important we all develop the numeracy skills needed to tell a good deal from a bad one.
A deal is not always a saving
There are deal types ranging from "20% off" to "buy one get one free" and even "lowest prices guaranteed". However, consumer advocates say supermarket price promotions can mislead consumers.
We wanted to understand just how confusing some of these practices are to consumers. We conducted a study using two representative samples from the US (1016 consumers) and Australia (607 consumers).
It showed that while the majority judged the promotions correctly, a quarter of customers miscalculated the value of the deals on offer.
"Buy one, get the second of equal or lower value half price" caused the most difficulty for consumers. Almost half of the US and a quarter of Australian consumers surveyed wrongly estimated the maximum they could save on the total purchase. (The answer is up to 25% off.)
Younger and lower income consumers tend to have the most difficulties in understanding the offer. Yet they are the consumers who would benefit the most from making sound purchase decisions.
And it's easy to understand why anyone could have trouble doing the maths required to understand the price promotion in front of them, especially with all the time pressure, visual clutter and multi-tasking involved in doing a weekly shop.
Our study participants analysed prices under the best possible conditions — with no time pressure, and no interruptions — and we still found that common deals confused some shoppers.
For example, 36% of the US and 24% of the Australian consumers could not calculate which offer would be cheaper for a $4 loaf of bread — "45 cents off" or "15% off". (Answer: the latter.)
Tough competition amongst manufacturers and retailers means more promotions for consumers and more opportunities to save. Yet, a downside of this competition is that it also pushes the industry to constantly invent new types of promotions and novel ways of communication to cut through the competitive clutter.
The most prevalent types of deal are "Price Off" (eg "30% off" or "$1 off" normal price), which accounts for around 25% of all offers. This is closely followed by "multi buy" or "X for $Y" deals, representing around 19% of all offers.
The complexity of the information on the point-of-purchase signage is also increasing.
Our audit of price promotion signage across 10 product categories revealed up to six numerical pieces of information located on just one sign. This may include retail price for loyalty members and non-members, unit price for members and non-members, savings for members, past reference price (before the discount) and deal expiry date.
All the above suggests consumers are faced with a varied and large amount of price promotion information in supermarkets.
Tips for the critical shopper
Price promotion signs give consumers the license not to pay close attention to the actual information on the sign and to what degree it represents a real saving.
Here are some ways consumers can critically assess deals on offer:
- Remember that discounts vary widely, so some "deals" may actually only save a few cents.
- Consider the prices of alternatives (sometimes the promo price is still dearer than the price offered by acceptable competitors or the same brand in a different pack size);
- Remember that buying the "every day low price" or "locked down low price" deal results in no real savings on the day;
- Don't forget that different colour-coded product tags attract attention but may not offer actual savings (for example, the promo sign may say "new" but offer no discount);
- Multi-buy offers may result in people buying more than they need and increases the potential for over-consumption and/or wastage;
- Some inventive promotions confuse the consumer with the use of verbal cues such as "special" and "sale" — make sure you check whether or not such items truly are being discounted;
- Price discounts can be for loyalty card members only, meaning the non-members and those who forgot to use the card will have to pay the full price.
Australian consumer advocates, CHOICE, and their UK counterpart, Which?, have also been reporting examples of clearly misleading promotions.
Where to from here?
There are three areas where action is needed.
First, best practice guidelines for the retail industry need to be developed on how to clearly communicate price promotion information. In the United States, the National Institute of Standards and Technology recently developed A Best Practice Approach to Unit Pricing. This is a document and extensive network of seminars and podcasts rolled out across all the US states on how to present the unit price information on point-of-sale signs.
Second, regulators should consult widely with researchers, retailers and consumer advocate groups to identify those price promotion practices that need tighter rules to avoid misleading consumers.
Third, education programs aimed at improving consumer literacy, particularly amongst young and low income groups, could be incorporated into the existing national curriculum on financial literacy.
Svetlana Bogomolova is Senior Researcher, Ehrenberg-Bass Institute at University of South Australia. Pei Jie TAN is Research Associate at University of South Australia. Steven Dunn is Research Associate, Ehrenberg-Bass Institute at University of South Australia.