Recently I needed to buy a large volume of M&Ms (for research…don’t ask). So I go to my local grocery store and see two different sized packages of plain M&Ms:
1. Small Size (9.4 oz) for $3.19
2. Medium Size (14 oz) for $4.99
(And no, they didn’t have the large size and there was no sale).
Something about those prices didn’t quite seem right. I know that I should get a volume discount when I purchase the larger size, but the numbers seemed off. So I whipped out my trusty cell-phone calculator and did the math.
It turns out that the M&Ms in the small bag cost $0.33936 per ounce, but M&Ms in the medium bag cost $0.35642 per ounce! So I was, in fact, losing out by buying the larger bag! Granted, we’re not talking about a lot of money here, but this is ridiculous. Consumers expect to receive a volume discount and yet here is a perfect example of the opposite, a volume surcharge!
And of course, I doubt many consumers would waste the energy to do the calculation meaning that Mars and the grocery store are pocking extra cash by taking advantage of people’s trust. I am not a fan of this!
So what gives?
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Prof A. Where’s My Volume Discount?. Anonymous Prof. 2008. Available at: http://anonymousprof.com/where%e2%80%99s-my-volume-discount/. Accessed November 18, 2008.
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Prof, Anonymous. (2008). Where’s My Volume Discount?. Retrieved November 18, 2008, from Anonymous Prof Web site: http://anonymousprof.com/where%e2%80%99s-my-volume-discount/
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Prof, Anonymous. 2008. Where’s My Volume Discount?. Anonymous Prof. http://anonymousprof.com/where%e2%80%99s-my-volume-discount/ (accessed November 18, 2008).
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Prof, A 2008, Where’s My Volume Discount?, Anonymous Prof. Retrieved November 18, 2008, from <http://anonymousprof.com/where%e2%80%99s-my-volume-discount/>
MLA citation:
Prof, Anonymous. "Where’s My Volume Discount?." 9 Apr. 2008. Anonymous Prof. Accessed 18 Nov. 2008. <http://anonymousprof.com/where%e2%80%99s-my-volume-discount/>
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What if your “volume” purchase requires multiple packs?
If you buy several larger packs you will probably buy more than you need. With smaller packs you can have less “over” purchasing - saving you money!
Let’s say you want 14oz of MMs:
You need two 9.4oz packs = $6.38 (and 4.8oz more than you want), contrast with a single 14oz pack - you saved $1.39!
Let’s say you want 18oz of MMs:
You need two 9.4oz packs = $6.38 (and only .8oz more than you want). One 14oz and one 9.4oz packs, or two 14oz packs still cost more, and have bigger over-purchase.
You win!
Tim Harford has the answer:
http://blogs.ft.com/undercover/2008/03/dear-economist-why-does-a-twinpack-of-milkyway-cost-more-than-two-singles/
Tim,
That’s a fair point, but I would argue that people don’t really buy things with specific volumes in mind (at least in terms of ounces). My guess is that people say “hmm…i need a lot (little)” and pick up some bags. When they need a lot (as i did) it appears to make more sense to buy the bigger bags (resulting in fewer # of items). But as we see, this winds up costing you in the end. So i’m just not that convinced by your argument.
Aaron,
I read that post and it rings of cynicism. And yet, it also rings of truth. I’m sure merchants are well aware of consumers’ a) inability to do simple math on the fly and b) lack of motivation to do so. So as sad as it is, I suspect that Tim has it right. Damn the corporations!
-AP