David R. Henderson  

My Private-Sector Complaint

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I agree with virtually everything in co-blogger Scott Sumner's complaint about, and analysis of, the government sector. I did a Krugman about the DMV a year ago and the evidence people presented in the comments caused me to cry uncle and conclude that the DMV was almost as bad as people were saying and that I couldn't put too much weight on my own fairly pleasant experience.

This is not about the DMV. It's about something in the private, for-profit sector that I find annoying. I'm not advocating regulation to handle it. I'm publicizing it to see if other people have similar experiences and reactions. When it happens, which is often, I almost always complain about it. So far it hasn't changed.

Here's the practice. When I go to the local Save Mart in Pacific Grove and want to buy something, it is fairly common for the big-label price to be, say, $3.99 and then for a tag to show that I can buy 2 for $7.00. So my common sense tells me that if I buy one item, which is what I usually want, I will pay $3.99, but if I buy 2, I will pay $7.00. In that case, the incremental price of the second item, is $3.01. At that price, I often do want the second item. But if the price of the first unit were $3.50 and the price of the second unit were $3.50, I don't value the second unit enough to get it.

Why would I ever think that the price per unit is $3.50, given that the stated price is $3.99? From long experience. When I go to the checkout line, I have my 2 units and I ask if I have to buy 2 to get the discount. The answer seems almost always to be "No." I can get one for $3.50. So I tell the checkout person I don't want the second item, and then someone has to hassle to return it. I'm not going to be the one to do that because it was their misleading labeling that created the problem.

Now, you might say, "If the answer almost always is no, why not just take 1 unit to the checkout?" Because I have this vague recall that it's not always no and then I would regret not taking advantage of the discount.

Does anyone else have this experience and this complaint?

BTW, in line with Scott Sumner's post, I have another complaint about Save Mart too, but it's a practice that I'm pretty sure [at least that's what the manager told me] Save Mart is required to do under state liquor laws. When I buy booze at Save Mart, I can't use the self-checkout. Even if I'm willing to show my driver's license because otherwise I would obviously be mistaken for a 19-year old, under California law, as I understand it, Save Mart won't let me buy booze in a self-checkout line. And I hate this way more than the Save Mart discount practice I mention above, because at least with the discount practice, I've found a way around it.


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COMMENTS (36 to date)
paul writes:

When self-checkouts came in, you could buy alcohol (and a clerk had to approve your age either by checking ID or just seeing you are obviously over 30 or whatever). Then some busybody in Sacramento changed the law so you couldn't do that because under age kids "might" find a way around the system. Talk about fixing a problem we didn't have.

Swami writes:

I have noticed that in Hawaii (Big Island) they are starting to strictly enforce the buy two, three, four or more requirement, and that substantial segments of groceries are now being priced this way. I assume they are trying to differentiate prices between locals and tourists, with the residents able to buy higher quantities. The savings are significant.

khodge writes:

The two major chains (King Soopers/Kroger and Safeway) in my area price the second item equal to the first unless they are running a specific bulk-pricing promotion covering multiple items in the store. My guess is they have found that people around here respond very poorly to the type of two vs single unit pricing, but don't seem to care if it is labeled two for $7 as long as it is $3.50 + $3.50. the local drug stores do price items at 3.99 + 3.02.

As for the liquor stores...remnants of blue laws (especially of the bible/moonshiners type) survive in probably most states.

Maxim Lott writes:

Yes, I've noticed that as well and find it annoying.

I get why they have "2 for $X" sales -- it's kind of like price discrimination, but within a given customer's own utility function -- what's odd is why a store would call it "2 for 1" but then give the sale anyway for 1 item.

My best explanation:
Maybe there is a demographic of really price sensitive shoppers who would not buy 1 item for the original price, would not buy 2 for the reduced price, but WOULD buy 1 item for the reduced price. Those coupon-clipper -types are probably also the most likely to know that one often doesn't have to buy 2. So the store keeps their business.

And then perhaps the somewhat- price sensitive shoppers largely assume that they do in fact have to buy 2, so the store gets to have the most appropriate sale aimed for those people.

If that idea is correct, then it might be rational for the store to have such a policy now; but not if more people became aware of this.

Seb Nickel writes:

Is the discount practice a legitimate form of price discrimination that might actually be worth the cost?

Dan W. writes:

The most degrading experience I've ever had was at a car dealership - and this was AFTER I had bought the car! So I don't think there is anything special about the private sector. Both public and private institutions are run by humans and humans, left unchecked and unaccountable, have a knack for being jerks.

Mike W writes:

Dan W. writes: So I don't think there is anything special about the private sector.

Isn't the significant distinction between the public and private sector products/services that the consumer can just say "no" to the private sector?

Isn't that the libertarian position?

Left to itself Sav-Mart would have a checker verify the alcohol buyer's age by sight so as to not annoy the customer and drive them to a competitor.

It is the public sector service providers that put in place processes and procedures that annoy the consumer because they don't need to be concerned about competition and they do need to be concerned about responding to small special interests.

Dan W. writes:

Mike, I agree that the ability to not do business with an institution or individual is a valuable freedom that is lost when dealing with the government. That Krugman misses this point is just one more example of hubris blinding his perception. You are also correct that regulation creates barriers to service improvement.

My point is that the argument against government service should not presume private sector service is defacto superior. It can be superior if there is is economic value in providing superior service. But there are many situations where the economic value is in the seller being a jerk, as can be in the case with high pressure sales (ie selling upgrades on a car purchase or home improvements, etc).

Of course an individual can recognize this and make it a personal commitment to avoid high-pressure sales situations. But doing this takes discipline and experience. The private sector is only a solution insomuch individuals have the freedom to choose to minimize interaction with insufferable jerks.

JK Brown writes:

The advantage of the private sector is not that they don't do things that are annoying, it is that you don't have to shop there. You can purchase your groceries at another store that doesn't do the odd pricing. In lieu of that, you create more work, i.e., costs, for the store by them having to return the unpurchased item. Theoretically, an astute manager or owner would realize the extra cost and clarify the multi item pricing.

On the other hand, the public sector apparently denies all vendors with self-checkout from facilitating legal purchase of liquor via the self-checkout. Your only hope is to go to another city or state depending on the controlling jurisdiction.

Mark Carbonaro writes:

I try to avoid Safeway, Save Mart et al. I'm able to do the bulk of my grocery shopping at the Grocery Outlet. The prices are extremely low and they don't engage in the kinds of pricing strategies that are common at the name stores.

Robert Simmons writes:

I think you're engaging in a negotiation without knowing it. If you brought one time and didn't ask they'd charge the full price, but the clerk is allowed to give you the lower price if you ask. That's my guess, anyway.

MikeP writes:

It is my universal experience at all the stores I shop at -- in northern California, if that matters -- that "n for x" pricing means that one is priced at x/n unless the labeling specifically mentions a different price for one.

In the case you are mentioning, "$3.99" is the regular price and "2 for $7.00" is the sale price -- a sale price that applies for one unit unless it says "one for regular price" or the like.

When I learned this convention many many years ago, I gathered it was the law. Frankly, if only one price is given, and it is "n for x", then it would not be truth in labeling for them to charge anything but m*x/n for any m. Hence the exceptions "one at regular price" or "limit 4".

Hans B Pufal writes:

I lived many years in both the US and in Great Britain. I now live in France and find that shopping here is most frustrating, something I rarely felt elsewhere.

Firstly the law severely restricts opening hours for all kinds of stores. Most shops are closed on Sundays. The government just "liberalized" the Sunday shopping hours by allowing stores to open up to 10 (used to be 5) Sundays a year, providing, of course, that they get permission from the local authority!!!! Some grocery stores are open every Sunday, but only in the mornings. I have made it a point to only shop on Sundays at those stores which are always open.

Secondly many shops have very weird opening hours which depend on the day of the week. That often makes shopping a gamble: will the store be open today when I get there?

Another gripe is that supermarket shelves are often empty of certain items. It is somewhat rare that I am able to find all the items on my shopping list. On more than one occasion I have found that the supermarket was out of the kind of milk I wanted!!

I have long thought that we need to communicate our frustrations in a more systematic fashion. I propose a "sanction ticket" which you fill in with your gripe and the number of days you will not visit the store in protest. This you leave at the checkout or, I suppose in this modern world, you send an email or SMS from your mobile. This would communicate our frustrations and would indicate the volume of lost custom resulting to the stores providing an incentive for them to "correct" the matter.

A quick web search brought up this : http://www.dailyfinance.com/photos/most-annoying-things-at-the-grocery-store/#!fullscreen&slide=989200

Seems many of my French gripes have crossed the big pond.

Kevin Erdmann writes:

I have noticed this, and it annoys me, too. I have assumed that they do this because everybody who checks out pays the same or less than what the label implies they will pay for the quantity they come to the check out line with, so they don't get many complaints.

On the other hand, Wal-Mart has a price matching policy, which they apply with the honor system, so I have been in line behind people several times watching a surreal scene where someone has multiple units of several items that are on deep discount at other chains, and the clerk counts each item and then looks to the customer to tell them what price to ring it up at. The person will generally just have, say, a small pad of paper with prices scribbled on it, and they'll say, "The hot dogs are $1." and the clerk just rings it up at $1. How's that for a business model?

Stat writes:

[Comment removed pending confirmation of email address. Email the webmaster@econlib.org to request restoring this comment. A valid email address is required to post comments on EconLog and EconTalk.--Econlib Ed.]

I tried to buy alcohol at Walmart. They would not sell to me unless my wife, who was with me, also showed her ID. Absurd!

David R. Henderson writes:

@Robert Simmons,
I think you're engaging in a negotiation without knowing it. If you brought one time and didn't ask they'd charge the full price, but the clerk is allowed to give you the lower price if you ask. That's my guess, anyway.
No. Three pieces of evidence against. First, when I do the self-checkout, it gives me the discount on one unit even before I scan the second one.
Second, in the rare case where there’s an employee around as I pick up the item, and I ask about the price, he/she will sometimes say that you get the discount on one item. The checkout person does not see this interaction.
Third, sometimes I wait until I see the price that’s rung up before asking. And I get the discount. So the checkout person doesn’t even know that it’s an issue for me.

Greg G writes:

David,

Either way, this is a lot of negotiating in order to save, or more often fail to save, a penny!

If you really want to be this vigilant about bad economic thinking shouldn't you be valuing the opportunity cost of your time more highly?

Terran writes:

Around here in lower New England, grocery store chains differ on this. Stop and Shop requires you to purchase the 2 items - if it says 2 for $6, it's probably 1 for $4.50. Market Basket, however, lets you purchase fewer than N items and scales the price linearly.

Of the two, Market Basket is generally seen as having lower prices and being more consumer friendly.

I originally found this annoying, but now I see it as a tiny wealth transfer from those who pay less attention to those who pay more, and since I am on the winning end I stopped caring.

David R. Henderson writes:

@Greg,
It’s not a penny. It’s 49 cents.
Actually, what you should have got out of my story, in terms of opportunity cost, is that I’m trying to save time. That’s why I take 2 units to the checkout. If, consistent with the usual practice, I can get just the one unit, then it costs me zero time. As I wrote above, I don’t return the second item to the shelves; they do.

Greg G writes:

Oops. I see your point now David. Thanks for the explanation.

Andrew writes:

Cub Foods in Minnesota will add (customer must purchase 4 items for discount). If that doesn't appear, then the 2 for X is a per unit price.

They do a lot of 10 for $10 and purchasing 10 units is not required.

AS writes:

I found a private solution to your problem: shop at Costco.

David R. Henderson writes:

@Greg G,
You’re welcome.
@AS,
I found a private solution to your problem: shop at Costco.
If you think through the problem I address, even a little, you will see that this is not a solution to this particular problem.

Phil writes:

I suspect the one-item price, second-item price, or average price is more a function of how the store programs its software than any regulation or deliberate policy. I bet those who charge the average price are reducing the transaction cost of reprogramming the computer with the sale price, choosing to enter one number instead of an if-then statement.

You're shopping at the wrong store. In our local Publix supermarkets, it's standing store policy that "2 for $X" price listings mean "1 for $X/2" as well. They're also very good about removing tags that have an original price on them. Hence, the ONLY tags are the ones with "2 for $X" and the confusion is usually avoided.

But then, not everyone has stores as friendly as we do here in the south. ;)

David R. Henderson writes:

@Phil,
Best answer I’ve seen yet. Thanks.

MikeP writes:

I suspect the one-item price, second-item price, or average price is more a function of how the store programs its software than any regulation or deliberate policy.

At least in California, it's regulation:

12024.2. (a) It is unlawful for any person, at the time of sale of a commodity, to do any of the following:

(1) Charge an amount greater than the price, or to compute an amount greater than a true extension of a price per unit, that is then advertised, posted, marked, displayed, or quoted for that commodity.

(2) Charge an amount greater than the lowest price posted on the commodity itself or on a shelf tag that corresponds to the commodity, notwithstanding any limitation of the time period for which the posted price is in effect.

(f) Pricing may be subject to a condition of sale, such as membership in a retailer-sponsored club, the purchase of a minimum quantity, or the purchase of multiples of the same item, provided that the condition is conspicuously posted in the same location as the price.

Phil writes:

@ MikeP:

That regulation does not require charging the average price for a single unit. Clause (2)(f) says the unit price can be contingent on the quantity purchased so long as it is conspicuously posted.

In David's example, that condition is met.

David Pinto writes:

My local supermarket is Big Y. If you need to buy multiple items to get the sale price, it's stated on on sale tag. The signs make you think you need to buy multiple items, but unless is says, "Must buy two," you can get the discount on one item.

MikeP writes:

In David's example, that condition is met.

No it's not.

(2) Charge an amount greater than the lowest price posted on the commodity itself or on a shelf tag that corresponds to the commodity...

The lowest price in David's example is $3.50. Unless specifically qualified by explicit labeling, that's the only legal price.

Vera writes:

Ditto to MikeP, 100% of the time I see these bulk discounts they apply to single items unless small print says "must by N" or "price for 1: X". I've done most of my shopping in California so perhaps this is due to their specific regulations but my vague recollection is more universal.

Speaking of these behavioral pricing strategies (false-bulk pricing, and the .99 thing, and "sales"-framing, etc etc) why are they mundanely common in the U.S. but rare in AU/EU? Is it entirely due to different regulations?

Dan W. writes:

More on lousy private sector service - a blogger shares his experience canceling a newspaper subscription. To tie this back to the discussion of product pricing here is the general principle: Private sector actors will willingly annoy their customers to make an extra buck as long as they believe they financially benefit. Of course people have long known this to be true, thus the adage: Buyer beware.

http://mungowitzend.blogspot.com/2015/07/phone-performance-art.html

Kitty_T writes:

At my local Kings/Kroger in CO, 2 for $7 always translates to $3.50 each at checkout. Whether this is just their practice or required by some regulation I don't know - the practice seems to be the same at other grocery chains, but I haven't really paid attention to what happens at non-grocery stores. I did see a "$2.95 each or 4 for $12" sign in a restaurant once, for which I'd love to hear a sensible explanation.

Honestly, I'm more annoyed by the practice of highlighting the "low" price of larger sizes, when the price per weight of a smaller size is actually lower (and that's mostly because the "per weight" pricing on the tags is so small I feel like Mr. Magoo squinting myopically at the tags to figure it out). On the bright side, anything that encourages people to practice everyday basic math skills is a good thing.

khodge writes:

I very much doubt Phil's software answer. In my experience, major grocery stores are the bleeding edge of technology.

JayT writes:

I've just always assumed the "buy two for $7 even though one costs $3.50" was just a ploy to get people that don't read the fineprint to buy two units instead of just one.

As for the self-checkout, it is law and it went into effect at the end of 2013. I assume (but don't know for sure) it was something pushed for by the checker's union. If you have to use a regular checkout lane for alcohol, then that gets rid of the possibility of automated checking for a good number of the customers.

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