Do the Math and Save Money

by Michael on Apr 16, 2014 · 5 comments

Photo of a Student Doing Math on a Chalkboard

Well, those sneaky marketers are at it again…

As you may recall, we recently bought a new car. Included amongst the many bells and whistles was a Sirius/XM satellite radio system.

To entice us to use their service, the system was pre-activated with a free, three month trial subscription. Thankfully, it didn’t auto-renew, but Sirius/XM has certainly been working to convert us into paying customers.

Subscribe and save?

Their latest advance was a mailing promising that, if we signed up today, we’d “get up to 5 months free.” Wow, great. Five free months. Great deal, huh? Well…

Here are the terms of the deal:

Billing Cycle Price Your Savings
Monthly $14.99 n/a
6-Month $29.94 4 Months FREE
1-Year $99.00 5 Months FREE

Quiz: What’s wrong with that offer?

That’s right. While signing up for a year give you an extra month for free (five vs. four), the annual plan is significantly more costly on per-month basis than the six month plan. Yes, even after factoring in the extra “free” month.

Run the numbers. The base price is $15/month. You can get six months for $30. That works out to $30/6 = $5/month. Or you can get a year for $99. That works out to $99/12 = $8.25/month. So you’ll wind up paying 65% more per month in return for what is supposedly an extra “free” month.

Note: My advice would be to save even more money by skipping satellite radio entirely, but this is still a great example of the games that marketers play.

Lessons learned

The lesson here is that you need to run the numbers and not just assume that signing up for a longer term is a better deal, even if it’s presented by the marketing gurus as such. Of course, the same goes for places like the grocery store, where the per unit price might actually be higher on larger packages. And on and on…

Actually, this reminds me a bit of the flea market we used to frequent when our kids were young and we were just starting out. We attended both as buyers (mostly of baby clothes) and sellers (of whatever junk we wanted to unload). I used to joke with my wife that we should price stuff at $0.25/each or 3 for a dollar just to see how many people would go for the volume “discount.”

Oh, and don’t forget to read the fine print. The prices above are actually subject to a “US Music Royalty Fee” that adds 12.5% to the stated price. Really? A separate royalty fee for the content? When you subscribe to a radio service, shouldn’t the cost of the programming be included by the subscription fee?

1 Kurt @ Money Counselor April 16, 2014 at 10:52 am

Wow, that is amazing. My guess is research shows that, when offers like this are presented, respondents mostly choose the longest term–assuming, falsely in this case, it represents the best deal–then the shortest term, and hardly any go for the ‘mid-range’ deal.

Just think–someone at Sirius feels very smug and proud of themselves for this little ploy. Sure glad I didn’t choose marketing as a career. 🙂

2 Steve April 16, 2014 at 3:09 pm

What happens at the end of the 6 months? Can you sign up for another 6 months, for the price of two? Or is that a one-time promotion, and at the end of that six months, you’ll be auto-or-manually subscribed to a full price, month-to-month plan?

I intentionally signed up for a less-than-cheapest-at-the-moment internet plan, because the price was permanent instead of promotional. Long term it was the cheapest (unless I was un-lazy enough to beat the streets for another promotional deal. Which I knew, from experience, that I was not.)

3 Michael April 16, 2014 at 3:23 pm

Good question. It doesn’t actually say, but there is no cancellation fee so you could just request cancellation and let them offer you a retention deal. In addition to the letter, we received multiple calls from them. When I was finally home to answer (and to tell them to stop calling) they were more than willing to wheel and deal to get me to sign up when I told them I had no interest of continuing beyond the end of the free promo. So I’m virtually certain that sweet deals would be yours for the asking at the end of the promo period.

But you are correct that there are sometimes other considerations, such as your example of locking in a good permanent price vs. accepting a better temporary price.

4 April 19, 2014 at 7:38 pm

It seems incredulous to me that people wouldn’t automatically do the math on any subscription based offer they get. Insurance is a common example of this. Most insurance companies will offer you a discount if you are willing to pay for your premium in full every 6 months rather than on a month by month basis. Your example with the sirus radio seems like a rarity, where it would be more expensive to pay for a long term deal. Great lesson though, always do the math for yourself!

5 The Wallet Doctor April 28, 2014 at 3:49 pm

Its amazing how often these type of specials turn out to bite the customer in the bum. Everyone should sit down and do some number crunching before buying into any promotional deal. These marketing guys are really smart at what they do, and they are definitely working to make you feel like its a great deal, and not necessarily actually saving you money.

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