Monday, October 26

The peril of discounts "with your next purchase"

On just about any frugality blog, you'll hear about Walgreens' Register Rewards (RR) or CVS Extra Care Bucks (ECB) -- or maybe both. These programs can be great for people looking to stock up on toiletries etc for little to no money. But, more often than not, I'm betting these systems help the retailers more than the customers.

Both RR and ECB cannot be used on the item whose purchase generates them. That is, if you're buying a $2 toothbrush and you get $2RR, you're not getting it free. Instead, the slip of paper can be used for your next purchase.

This is really a win-win-win situation for the store.

Scenario 1: You come back to the store to use the bonus. You'll almost certainly see something you had forgotten you needed. You end up buying more items than anticipated -- and you still feel like you're getting one over on the store.

Scenario 2: You come back to the store to use the bonus, but you aren't cautious about how you spend it. You indulge in some candy, or whatever, because you have $5 free. You'll still have to come back to get the personal care items -- Qtips, toilet paper, deodorant, etc -- and you still paid for the purchase that got you the RR/ECB. So the store is assured profit, and yet you still believe you're getting a deal.

Scenario 3: You forget to the use the slip of paper before it expires. So you paid for the original purchase, expecting a future discount, only to lose that. But, because it's just a slip of paper, you don't feel all that cheated. It was never real money anyway. And this slip-up may just spur you on to try again, believing you'll do better next time.

The house, as they say, always win.

Of course, drugstores aren't the only ones playing this game. Clothing stores like Kohl's, JCPenney and more have been giving out "bonus bucks" for ages. You spend $50 now, and we'll give you a gift card worth $10 -- that will be usable in 1-2 weeks, and then only for a set period of time.

This spin is marketing brilliance. First and foremost, people will spend more. If they're already spending $40, why not spend $50 and get $10 back? You're practically cheating yourself out of $10 of spending if you don't buy more now! (The human brain does wonderful things with simplifying complex math problems into simple, if mistaken, nuggets of wisdom.)

Second, people will forget to use the bonuses. They'll get busy or lose the flyer or whatever. The point is that they'll find it, weeks later, while rummaging through their wallet for something else. Like the RR and ECB, they'll sigh, irritated with themselves for missing out on the opportunity. But they probably won't remember/dwell on the extra money they spent to get that bonus. They'll just look at it as potential free money that got wasted.

Third, people will use the bonuses. How is this great? It gets customers back in the door and buying things. A "free" $5 or $10 sounds great when they're justifying a purchase. In fact, they are just buying more things that they couldn't otherwise rationalize. In this scenario, $5-10 off the retailers' profits is paid back several times over: When the people try to "round up" their initial purchase to qualify for the bonus, and when they use the bonus as a discount on more merchandise.

Of course, if you're careful and keep your head, these sorts of sales can be terrific opportunities for frugality. Plenty of bloggers boast about their deals via RR and ECB. It can be a tremendous coup.

The problem, however, comes with the overall human mindset. Most people struggling with debt know all too well just how much we, as a species, crave instant gratification. We tend to deal best in the present tense, especially when it comes to sales.

So, looking at store circulars, it's only natural that we focus on the bottom line, post-RR/ECB price. That price is in nice, big type. Usually in a vivid color, too. In the smaller print, the ad explains the actual price you pay, how many RR/ECB you'll get and how it's like spending that nice, big-type, bright-color amount.

Technically, there's nothing wrong with this line of thinking. You can choose to take the discount off the initial purchase, rather than the one where you actually use that slip of paper. And if it stopped there, there's no problem.

Unfortunately, that darned present-tense predilection gets us again. We take the discount off both ends of the transaction. We spend $2.99 on the toothbrush and get $2RR, making it just $0.99. What a deal! Then, the next week, we go buy a $4 deodorant and use the RR, meaning it only cost us $2. Except that would mean we've only shelled out $2.99, rather than the $4.99 now missing from our wallet.

It's just too easy to get caught up in the heady mix of sales and discounts. It's too easy to forget when and how you are counting the discount. Was the toothbrush 99 cents, or $2.99? The deodorant $4 or $2? And, if only one is discounted, are they both still good deals?

It's a complicated thing to wrap your head around at times. And the more time between transactions, the harder it is to remember. When I was mystery shopping, I would constantly have problems keeping things straight. Payments come 6-8 weeks after the fact. Meanwhile, any expenses you incurred are abstract and forgotten. Sure, maybe you shelled out $40 for dinner and were paid $10 for the shop. But that was two months ago. Now you're excited to get a $50 check, and eager to apply it to some other, more current expense.

I was worried about this double-dipping of savings. Still, our pantry desperately needed soem fleshing out. We had gotten rid of so much, and my mom was no longer nearby providing us with toilet paper or pasta when we ran out.

I decided that the only solution was to choose: apply the discount on the first transaction or the second? It was actually kind of a difficult decision to make. All of the ads encourage you to count the discounts on that first purchase. I was tempted to choose that and just take every circulars' prices as shown. It's hard to read the circulars with suspicion and do your own, individual math to decide what things actually cost.

In the end, though, the only real answer was to only count the discount once it had been used. If you pay $2.99 for that toothbrush and then never use the $2RR, you haven't actually saved, have you? And given how unpredictable my energy can be, I figured I should rely only on what has been accomplished, rather than what might be.

Since my energy is unpredictable, though, I try to use all of the RR in one trip to the store. I buy one set of items, get the RR, then use those on the second set of items. If there are any RR from those, I use them on a third set. This way, nothing ever expires before I have had a chance to use it. It takes a little more planning, of course, but I find it infinitely better than hoping I don't waste the promise of savings.


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