The biggest 7%-off sale in history: Why are sales tax holidays such a draw?

At 12:01 a.m., Mississippi’s sales tax holiday weekend officially began. It is one of the most restrictive in the country, covering only “Clothing and footwear items, meant to be worn next to the body and cost[ing] less than $100 per item,” according to the Department of Revenue press release. Touted as a back-to-school savings event, it doesn’t cover backpacks or school supplies of any kind. And if your child participates in athletics, sportswear doesn’t count either, despite it’s closeness to the body.

Still, your favorite shopping destination in the Magnolia State will likely be packed this weekend, as families look to save on blue jeans, t-shirts, socks and the like (unless they have a Nike swoosh on them, I suppose).

Why?

In an age of deep retail discounts, we have become accustomed to seeing 40, 50, 70-percent-off sales all the time. Consumers don’t respond to small markdowns in such an environment. A ten-percent discount is not enough to get people in the doors right now – just ask Borders. The soon-to-be-defunct bookstore chain, in the midst of liquidating remaining stock at stores across the country, is currently offering discounts of up to 40 percent, but typically closer to 10 percent. The small sample of consumers I have spoken to left the bookstore upset. They anticipated far deeper discounts than what was available.

Ten percent off? Please, those types of sales aren’t even listed in the Sunday circulars.

This all has to do with Weber’s Law – a measure of when change in a stimulus is perceived. It involves the differential threshold – the ability to detect changes between two stimuli – also known as the “Just Noticeable Difference” (JND). In product pricing, the goal is to never exceed the JND when raising prices, so that the consumer won’t find the change disagreeable to the point of rejection. Conversely, retailers must exceed the JND when lowering prices, or offering sales. Otherwise, the consumer won’t bite at the opportunity for savings.

Weber’s Law posits that the Just Noticeable Difference varies depending on the initial value of the stimulus. In other words, while knocking $1 off of a 12-pack of Coca Cola that normally costs $4.50  will likely entice consumers to take advantage of the sale, taking the same $1 off a $45 pair of jeans won’t persuade anyone to buy more denim.

At the same time, if every store is taking $1 off their 12-packs of Coke, consumers are going to become accustomed to the new price. They are going to begin to expect such deals to the point that further discounts are necessary to trigger the same differential threshold. That is the impact continued mega-sales have had on retailers operating in a poor economy. Small discounts no longer represent a JND. Consumers will hold out for greater savings.

Which is why the allure of sales tax holidays is so curious. In Mississippi, the holiday amounts to a seven-percent discount on clothing – not necessarily inexpensive items. Tell me, if the signs outside the a mall clothier said, “THIS WEEKEND ONLY, 7% OFF!!!” would you bother walking in? Before you say no, remember, for every $100 of product, you will only pay $93!

Let’s face it, sales tax holidays hardly satisfy Weber’s Law in the current retail environment. So why is it a can’t-miss event?

It could be the media attention. News outlets in the Jackson area have been previewing the big weekend for two weeks. I tend to think it has at least a little to do with a sense of rebellion – sticking it to the man. “Oh, yeah, big government? You’re not getting your hands on my spare pennies today!”

Is it that we feel like we’re somehow swindling the system, to the point that we don’t realize the minuscule amount of money we are saving compared to, say, any other weekend of the year?

Whatever the reason, I know I won’t get on a road anywhere near a shopping center this weekend. Plan your detours accordingly – the biggest 7-cents-off-the-dollar sale in history is on.