❝I do not read advertisements - I would spend all my time wanting things.❞ -Franz Kafka
I'm driving to a department store with my friend because we have a wedding coming up and he wants to buy a new shirt. It's 2004, and I work for a bank, so I don't need any new clothes because I have plenty of dress clothes. I'm along for the ride because we plan on going out for lunch afterward, and it's rainy and cold, so there's nothing else to do.
As he's trying things on, I wander around and look at what's on sale. One particular table has $60 shirts marked down to $20! I can't believe how great a deal this is! I quickly justify these shirts as being a good deal and buy two.
That's right, I didn't need any clothes, but I bought two shirts - for no other reason than they were on sale.
It might seem obvious or otherwise unnecessary to define what a sale is, but I will anyway. A sale is when the price of a good or service is reduced. That sounds simple enough, and most people already kind of know that.
There's an inverse relationship between the price of something and how quickly it sells. This might sound like an obvious statement, but it's important. Understanding this concept helps us get into the minds of the people offering the discounts.
Understanding why something is on sale is important to know if we want to determine if a sale is a good deal.
PRICED TO OFFER A DISCOUNT
Sometimes things are technically on sale but aren't really. You might see this, for example, if a company offers an annual sale or a sale around a holiday. As you get closer and closer to the sale date, the price creeps higher and higher. Then, during the sale, they can reduce the price. They might be able to reduce it down to the original price, but they often reduce it to a higher price than what it would have otherwise cost. Thus, a sale price can actually cost you more than if you had bought it six months earlier.
This works so well because we are anchored to the "original price." We focus on how much we save instead of what we should be focusing on - which is how much we spend.
A SALE AS A FOOT IN THE DOOR
Another reason somebody might offer a sale on one product is that they want to sell us other products. This is the proverbial foot in the door. If I can sell one thing at a low enough price to get you into my store, then you'll be tempted to buy other things in my store that are not on sale and maybe even marked up.
Sometimes the sale is on a big-ticket item so that all the accessories look inexpensive in comparison. For example, I might go find a suit that's on sale and then buy several ties, socks, shirts, and a belt. Those accessories are less money than the suit but may have higher profit margins for the company.
Other companies might use the sale price as a way to upsell me. I might go in for one thing on sale, but once I'm there, skilled salespeople talk me into a better version, a warranty, or an alternate product.
UNDERSTANDING WHY YOU BUY
This is not to say that you should never take advantage of a sale. You may, for example, have your eye on something that you want but don't necessarily need. Then when a company offers a discount, perhaps because the company is making room for new inventory, you can get what you wanted for a lower price.
The order here matters. In this example, you wanted something and waited for the price to come down before you bought it. This is quite different from seeing a sale and deciding you want it because it's on sale.
Reduce your stress. Live your life on purpose. Align your money with what's important to you.
You get one life; live intentionally.
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Related Money Health® Reading
References and Influences
Ariely, Dan & Jeff Kreisler: Dollars and Sense
Cialdini, Robert: Influence
Godin, Seth: This is Marketing
Note: Above is a list of references that I intentionally looked at while writing this post. It is not meant to be a definitive list of everything that influenced by thinking and writing. It's very likely that I left something out. If you notice something that you think I left out, please let me know; I will be happy to update the list.