Is this correct?

[Steve]

Anyone know or care if this latest deal from Tesco is correct?

I just watched their TV advert which made two claims as far as I could see.. that they were cutting prices on some ranges by 20%... and that these items would then be VAT free..

The graphic they use and one of the prices is shown below for your consideration:



So as you can see, a PS3 has reduced from £245 to £199.

20% of £245 is of course £49... so if something is reduced by 20% from £245 surely that means it should go down by 20%?? So it should be £196 by that logic?

You could say well maybe they are working with the before VAT prices.. in my days in retail you could do that with business customers but not normal retail ones... needing to show and talk about all inclusive prices with normal retail customers.

So, say they were working with before VAT prices anyway...as maybe the way that is looked at has changed since my time. The £245 price was actually £204.17 plus VAT at 20%.

So, if you reduce the £204.17 price by 20% you get £163.34 as your new price before VAT, and after adding the 20% VAT on you get £196

So.. my question is... how can they make their claims and charge more than £196?

I'll be happy to hear if I've mixed something up... or if they have? All ideas welcomed!

Steve

[John]

Steve,

Your figures seem right to me. None of their figures whether applied to prices before or after vat come to 20% off. £46 off £245 is roughly 18.8% off. Perhaps that is near enough 20% in some copy writer's mind...

John

[Simon]

What is the small print attached to the * after 20% of Gaming?

[Steve]

Simon,

The full thing is at www.tesco.com and is one of the main adverts/sections at the top of the page. You'll also see this on TV.

I believe the * was just about some 3D games console that is not on offer...you can look for the * on their site and confirm that etc.

John,

In my time in Sales and Marketing and as I remember it the law of the land didn't allow for being roughly right and nor did it allow what seems to be the case here... that perhaps someone has worked out that the price is below what it would be if you took off the 20% VAT.. so a PS3 going down from £245 to £199 is more than a reduction of the 20% of VAT...the price was £204.17 plus VAT at £245 after all.. still though, to say it is 20% off seems to my mind to be totally untrue...as 20% off of £245 is £196 as we both agree....and they should be dealing with retail customers who deal in VAT inclusive prices.

In my day a lot of our graduates coming into marketing couldn't get their heads around things like VAT and profit on return and profit on cost and all the rest of it... and most would even get their expenses wrong as they could not work out how to deduct VAT from their claims/bills etc. I wonder if this is a 23 year old making a basic error or two, or if it is us old folks not understanding something basic about this offer...

Steve

[Steve]

...hmm...okay.. two more things I've noticed:

1) If you try and buy a PS3 they are actually charging £196 for them! So they seem to agree with us on what 20% off should be... it is their marketing blurbs/graphics that seem likely to be wrong...

2) If you see the TV advert look at the words at the bottom of the screen... "20% discount equivalent to VAT" it says there... but it simply isn't, is it?

VAT is added to the selling price to give you the full retail price including VAT. So if an item would be selling at £100 it sells at £120 if it attracts VAT at 20%. All very simple.

What a lot of folks forget though is that if you reduce the full selling price including VAT by 20% that is NOT the equivalent of removing VAT. Vat is £20 out of the £120 total... so it is not 20% of £120 is it... it is actually 20% of £100.

This whole marketing drive looks a little flawed on the face of it.

When working out how best to remove VAT from things my simple way is to take the full price including VAT... and divide it on a calculator by 120, then multiply by 100. So £120 / 120 = £1 then x 100 = £100.

On the other hand if you want to reduce the full price including VAT by 20% that is the £120 x .8 = £96

Tesco could probably have sold just as many items if they had simply said "we'll pay your VAT" and if they had then removed the actual VAT included in the original price of the items.. as it is they are having to go much further than that... most folks told 'we will pay your VAT' will look on it as getting a 20% reduction anyway won't they....

Sfeve

[Nigel]

£46 off £245 is roughly 18.8% off. Perhaps that is near enough 20% in some copy writer's mind...

I expect that'll be the answer and 18.8% is nearer 20% than 15%.......

Nigel.

[Steve]

Nigel,

Copy writers don't set prices, they write copy...

The Product Manager for Gaming or similar is the likely person for setting selling prices during an offer.

This could be a simple error somewhere... but the way the TV advert is worded as well... talking of the 20% discount being equivalent to VAT seems to have the same sort of problem. I can see why saying that might help explain what they are trying to do.. but it is actually not correct that a 20% discount is equivalent to VAT....as the figures in the messages above show.

I have to admit I am not a fan of supermarket pricing/offers these days. One of my pet hates is the large 2 for £2 or whatever signs you get, and underneath them covered up is that one item is £1.96... so buy one and you pay £1.96 when 2 would have cost 4p more. A lot of folks pick up 1 because that's what they need and because they imagine that the price for 1 must be near £1 if 2 are £2. That is a very major con to my mind.. and it seems more and more common.

Steve

[Steve]

...just to close this up.. it looks like the offending/problem offer has gone, the material I can see at this moment all just talks of reductions being greater than 20% and they all seem to be showing prices that reflect that.

The current wordings I can see relating to VAT still seem a little naff but not incorrect.

I wonder how much folks like Tesco and Curry's etc will have to sharpen up to compete with Best Buy as they make their presence felt in the UK.

Steve