Ahan Analytics, LLC

The topic of pricing is one of my favorite on this blog. Over the years, I have developed a keen sense of pricing dynamics. So when I find (apparent) pricing anomalies, I feel compelled to talk about and explain them.

I made a quick 2019 New Year’s Eve run to Target and decided to take a quick trip through the grocery aisle for some breakfast options. My eyes soon landed on an old favorite, Corn Chex from General Mills. The cereal was one of the few sales Target offered at the time. Almost without a thought I reached for the 12-ounce box which was attractively priced at $2.50, a whole $1.49 lower. The 37% discount looked like a steal!

However, me eyes drifted to the even bigger 18-ounce family size Corn Chex, and I got distracted by a decision. At $3.79 a box, this jumbo-sized offering surprisingly cost 20 cents less than the regular price of the 12-ounce box! The 18-ounce box cost 21 cents/ounce. At the sales price, the 12-ounce box also cost 21 cents/ounce. Suddenly, Target’s sale did not seem so attractive. Since I love Corn Chex, I put the smaller box down and put the bigger box in my shopping cart. If I am paying the same effective price, I do not need the sale.

So what gives? Most likely, Target charges slightly more for the smaller box to encourage consumers to buy the bigger box of cereal. Surely the decision is easy for large families with a lot of corn Chex eaters. The only people who would pay 20 cents more for 6 ounces less of cereal are people who have no room in the pantry for the bigger box. Consumers who are solely focused on quantity over price might also pay more for less. Either way, Target makes a sizable margin on those sales. When customers purchase enough of the bigger box, Target uses the appearance of a sale to push the smaller box out the door. Target “anchored” consumers to the $3.99 price point for the 12-ounce box, so $2.50 looks like an incredible deal. With the “sale”, the only people who will buy the bigger box are people like me who truly want to eat a LOT of Corn Chex.

Retail stores use regular prices to anchor their customer’s measurement of value. Anyone who shops regularly at Target looks at the Corn Chex sale and sees a fantastic bargain. Target just sees the end of their opportunity to gain out-sized profits from people who are not paying attention.

The lesson? Pay attention to your price per unit of measure and decide accordingly! Sometimes a sale is not really a sale…sometimes a sale is just the end of a non-bargain.