## Wednesday, July 09, 2014

### The Can of Soup with Better Value

I saw this question when I was teaching a student. It's not new and I've seen it a long time ago, but it always tickles me whenever I read it. The link is here but I'll type it out here too:

Two different sizes of tins of soup are shown. The mass of the soup and price are given below:

SMALL can : 415 g @ \$1.04

LARGE can: 815 g @ \$1.98

Which size of tin gives the better value? Show your working properly.

There are a few ways to answer this question correctly to get the marks:

1. Find the cost per gram for each can of soup. Whichever gives you the lowest cost per gram gives the better value

2. Find the mass per unit dollar for each can of soup. This tells you how much soup you can get for each dollar spent. Whichever gives you the highest mass per unit dollar gives the better value

However, I was remarking to my student that even though the calculation is correct, it’s based on a few assumptions:

A. You really love the soup and want as much as your greedy hands can grab at the lowest cost your wallet can suffer

B. The expiry date of the soup are the same

C. You have enough money to buy both cans of soup

Let’s take a look at all the assumptions more critically than what a student should do in a national exam. Because, you know what, if you think too much in exams, you just might be marked wrong since the answer script don’t allow deviant though logical solutions. Th

A. You really love the soup and want to get as much as your greedy hands can grab at the lowest cost your wallet can suffer

This is fairly important because I’ve seen many occasions when marketers trick consumers into buying something that cost more absolutely but cost less on a per unit basis. To sell the higher priced item, you just calculate the amount of ‘savings’ you’ll get if you calculate it per unit mass, per unit volume, per unit whatever. It’s a marketing gimmick, IF you don’t need the product but get persuaded to buy something you don’t need for a ‘cheaper’ per unit cost.

I’ve fallen for this one every now and then. Typical example goes like this: Curry puff auntie says buy 1 curry puff at \$1 but buy 3 at \$2.40. You do your sums and realized that buying 3 curry puffs means each curry puff is at \$0.80. You buy 3, then you can’t finish and you throw 2 away.  Well, if you really want 3 curry puffs (to share, for example), then it’s a steal to buy 3. If you really wanted one, spending \$1 instead of \$2.40 is a better deal.

I’ve seen many people eating at hawker centres and wasting one full bowl of rice because they’ve already paid for it since taking the rice (whether you’re eating it or not) gives a better value for your money. For goodness sake, if you don’t want to eat, then don’t waste lah.

B. The expiry date of the soup are the same

Sometimes, when the expiry date of the food is drawing near, stalls will try to sell it off as soon as possible, otherwise they can’t sell it past the expiry date anyway. You start to see discounts on them.  If you’re not discerning enough, you might have bought a bigger can of soup with a shorter expiry date. If you can’t finish it in time, you’re going to waste both the food and your money!

My wife tends to do that. I’ve read somewhere that when a woman shops, she buys things at a cheap price regardless of whether she needs it or not. However, when a man shops, he buy things he wants regardless of the cost. It’s quite true, at least to both of us. She won’t hesitate to buy 2 more bottles of stuff if there’s a discount, never mind that she might not be able to finish it before the expiry date.

I hope I’ve shared how the expiry dates of products can affect one’s perception of value.

C. You have enough money to buy both cans of soup

I think it’s important to consider both the unit price and also the absolute price. Things are almost always cheaper if you do bulk purchase, but you will tie up a lot of cash in ‘inventories’ under your balance sheet. If the goods are perishable, you’re practically burning money if you can’t consume them in time. If the goods are not perishable, you run the risk of having forgotten about it, rendering them unusable. I think your cash can be put to better use rather than to store them in the form of consumer products.

I always make the joke that in a zombie apocalypse, sticking to my wife will save my life because if I’m to live alone, I won’t bother stocking up on things. I just don’t like the idea of my cash tied up in some products stored in the store room. Personal preference.

So, in the end, which one is a more value buy? I wish I can say for sure that it's the cheapest one, but life's not that simple. If there's one advice I can share, it certainly isn't to buy the things you really want as cheap as possible, but to avoid buying things you don't need regardless of how cheap they are per unit basis or absolutely. No matter how cheap things are, if you don't want it, you really don't want it.

Can this be extended to investments? I'm sure it can be. As in real life, so it is in investment.

Anonymous said...

That's so true... I've thrown away bottles of supplement that I can't finish in time (lack of discipline!) but bought in bulk due to "savings"... Nowadays I just buy what I need, except for household non perishable like detergent, disinfectant, etc.

Createwealth8888 said...

Penny stocks are cost effective.

Blue chips are way too too expensive.

Same theory?

B said...

Hi LP

This is marketer's trick. Dont blown them away :)

To be fair to the seller, when they sell in bulk they usually gives a discount because it eliminates them with all the hassle and admin costs they would need to incur should they sell in pieces.

To the buyer, all I can say is it can be a win win situation to both the seller and the buyer. The power lies in the buyer whether he or she thinks its value otherwise.

la papillion said...

Hi anonymous,

Yea, me too. Except for non perishable items, I would not stock up. Even for non-perishable items, I also seldom stock up, because I can just buy it from the shops downstairs lol

la papillion said...

Hi bro8888,

It's not the same theory, until you mention that because penny stocks are cheap, hence with the same amount of money, you can buy a lot of shares. But for blue chips, with the same amount of money, you can only buy a few shares. Therefore, penny stocks are more 'value'. LOL

la papillion said...

Hi B,

Haha, I do that when I need to sell things to others too...just quote a cheap per unit price and market it as a better alternative :)

I agree with your statement. It's one of the reasons I give to others when I rationalise for them why this certain product is of a cheaper unit price LOL

Really, we have to be discerning and buy things that we really want. Don't let the price distort your perception of value.

sgpropertyinc said...

haha i had a good laugh over the way man and woman have different value perception. So true! i just bought alot of household stuffs, because there was offer. Stock up! now my home look like the supermarket. But on that note, stock picking is like shopping. Women have their shopping list, with specific price point. Once we see a bargain, we will snap it.

www.sgpropertyinc.blogspot.com

Mrs 15HWW said...

Hi LP,