Yesterday Ellen asked me to cook breakfast for her and a friend (after a sleepover). I discovered no eggs in the refrigerator - ugh!. Just down the road is the Terrace Park UDF (United Dairy Farmer) convenient store. As I approached the eggs the "sale" sign said 2 dozen for $3.00. Decisions, Decisions.
Now convenience comes at a price - a dozen eggs was $1.98 and consequently two dozen would be $3.96 at retail. Was it worth the stocking double the quantity needed in inventory for the $0.96 savings from the already outrageous convenient store price? Without data (or an iphone) it is a spur of the moment judgement call.
The average price of a dozen eggs in Cincinnati is $1.21 and the national average is $1.61. Therefore convenience store premium (before sale) is $0.77 and after sale is $0.29 (but requires purchasing double the quantity - so double the premium to $0.58 or $3.00 less 2 times $1.21). Oh - for apples to apples comparison this is Grade A Large (I wonder if there is any other grade than A?). So the breakeven variables include your time, the gas and mileage to Kroger, the opportunity loss of the extra cash outlay, space requirements, and quality. All these variables the mind is processing in the background in approaching this seemingly trivia purchasing decision.
I began to wonder what percentage savings will incent you to buy double the volume of inventory. Naturally it depends on the perishablility, and "weeks of supply"/consumption pattern of the goods. But assuming a normal consumption pattern with low probability of perishability or obsolecence - what price savings incents an individual to buy double the quantity? UDF has determined that saving $0.96 (24.2%) on eggs will incent you to buy double the eggs.
What if they said - Save 25% when you buy two dozen? Would you buy? I doubt it. But when they say buy two dozen for $3.00 it seems like a good deal. What about two for the price of one? Or buy one get one free? That seems like a no brainer - unless the retailer has artificially increased the retail price for the quantity of one to disguise the savings. Or it could be obsolete inventory or close to expiration and the retailer is trying to avoid writing off the inventory.
As consumers we face all kinds of discounting and "sale" incentive decisions. Complexity with quality, quantity, convenience, usability, substitutablity, and cash outlay makes optimal purchasing decisions difficult.
Maybe I should add a last criteria to the decision - materiality. Most would say - who cares about a $0.29 to $0.77 cent non optimal decision. It's not worth the time to even blog about :)