In this post, I am not just going to calculate the discount from a run-of-the-mill Dunkin’ Donuts food promo (because that would be too easy), but also try to connect it to the concept of self-interest and the invisible hand. By the way, this is NOT an advertorial. This is a legitimate post y’all. I love donuts and I love promos more. Upon entering a neighborhood Dunkin’ Donuts (DNKN:US see latest stock quote), I planned to take out one – or maybe two – donuts home. However, I saw this poster.
The franchise owner for Dunkin’ Donuts in the Philippines is Golden Donuts Incorporated. The promo price for this box of donuts is PHP 199 (USD 4.51). If I buy the donuts separately, this is what I’ll have to pay:
- 3 premium donuts – PHP 35 each – total of PHP 105
- 3 regular donuts – PHP 20 each – total of PHP 60
- 12 munchkins – PHP 4 each – total of PHP 48
Separately, the donuts cost a total of PHP 213, so there’s a savings of PHP 14 (USD 29 cents) or 6.6% with the promo. In my opinion, that small a discount is not really a good deal. Yes I saved money but I spent for something I didn’t plan to buy in the first place. If I planned to buy two donuts (PHP 40 – 70 total) and I ended up paying 199, I overspent mutliples of my original budget. Of course, the poster and the lure of a discount enticed me to buy. Had I done my calculations first and realized that all I’ll end up saving is a measly 6.6%, I wouldn’t have proceeded with the purchase. By giving a discount, what did Dunkin’ get from the deal? I won’t be able to put a number, but the store that will certainly get the better end of the deal. Why is this so?
- Increase in revenues – from the 40-70 that I originally wanted to spend, to 199
- Decrease in per unit selling cost, as it is more costly per unit to sell one donut than a boxful
- Less cost from unsold inventory – unsold donuts take up space and will need to be disposed of (and documented) at the end of the day
- In relation to the above, Dunkin’ was able to push its less popular donuts – I needed variety in the box so I chose whatever flavors were there, even flavors that I probably will not buy individually
- Additional marketing – as the donut box is an advertisement in itself when I carry it around
This brings us to the concept of self-interest. The discount that I got, no matter how little, was not due to the benevolence of Dunkin’ Donuts. The company was looking out for its own interests. From that, I benefited as well. I was also looking out for my own interest. In my desire to save, I bought into the promo and in doing so, I gave benefits to Dunkin’. This pattern of self-interest and benefits is repeated many times over in business transactions everywhere. This is what actually moves the economy, sort of an invisible hand that guides it forward. Since I bought too much donuts, I will probably give some of them away. The recipient will benefit of course, but then again that gift is due to my self interest. I hinted in one post about physical fitness that I want to get back in shape, so the donuts will have to go. Want some donuts? Raise your invisible hands if you want one. – Finance MD thefinancemd.com