It’s 3pm in the afternoon. Along with thousands of other Singaporeans, we at DollarsAndSense head out to the nearest Starbucks outlet to enjoy the one-for-one special. As we are prone to do, we started to ponder the best way to split the savings among ourselves.
Scenario A: Buying 1 Drink, Getting 1 Drink Free
Dinesh wants a $10 drink.
Timothy wants a $5 drink.
$10 is paid (for Dinesh’s drink)
$5 is saved (cost of Timothy’s drink)
So, what should the fair way to distribute the savings be? Since they are good friends, they agree that both of them should get to enjoy the benefit equally. In other words, split the $5 discount equally among themselves.
Dinesh pays $7.50 for his $10 drink, enjoying a savings of $2.50
Timothy pays $2.50 for his $5 drink, also enjoying $2.50 in savings.
Scenario B: Buying 2 Drinks, Getting 2 Drinks Free
Four other interns behind Timothy and Dinesh are next to order their get coffee.
Alan, Brenda, Charlie want a $2 drink (okay, we know Starbucks don’t offer $2 drink. But let’s pretend they do for illustration sake)
Denise wants a $10 drink
$12 is paid (for Denise’s drink and one other $2 drink)
$4 is saved (cost of two $2 drinks)
Learning from Timothy and Dinesh, they too decide it would be most fair to distribute the savings equally among themselves. Thus,
Alan, Brenda, Charlie all pay $1 for their $2 drink
Denise pays $9 for her $10 drink
This appears somewhat logical. Everyone is still happy.
Scenario C: Buying 2 Drinks, Getting 2 Drinks Free
The logic of spreading the benefit equally among friends almost seem to hold up. Until, that is, they decide to change their mind:
Alan, Brenda, Charlie decide they now want a $10 drink
Denise wants a $2 drink
$20 is paid (cost of two $20 drinks)
$12 is saved (cost of one $10 drink and a $2 drink)
Total savings: $12.
Going by the principle of equal distribution, how would the benefits work out in this case?
Since total savings is $12, each person should be enjoying $3 in benefits:
Alan, Brenda, Charlie would all pay $7 for their $10 drink. They are now not happy about this because they would have paid only $5 (instead of $7) had Denise selected a more expensive $10 drink instead.
Under the current arrangment (which as we remind you, worked perfectly well in the first two scenarios), Denise would get her $2 drink for free and get to pocket $1! ($2 – $3 = – $1).
That is ironic and doesn’t make a lot of sense, does it? Thus, the principle of equal distribution is shown to be flawed.
But are you guilty of doing it?
The “Correct” Solution In Scenario C
In the scenario above, what the four friends should have done to avoid Denise receiving $1 for buying a $2 Starbucks drink (in addition to making the rest pay more), would be for the friends to split the savings based on the same proportion of which they contributed to the overall bill before discount.
|Cost Of Drink||Overall Bill Contribution||Discount They Should Receive|
Alan, Brenda and Charlie should pay $6.25 for their drinks (instead of $7) while Denise should pay $1.25 for her drink (instead of receiving $1).
The “correct” solution isn’t what most people who order 1-for-1 Starbuck deals actually go for (including ourselves). This is somewhat ironic if you think about it, since you would expect most people who buy Starbucks drink during 1-for-1 promotions to be customers who want to maximise their savings.
That’s something to think about as you sip on your next Starbucks drink!
DollarsAndSense.sg aims to provide interesting, bite-sized financial articles that are relevant to all Singaporeans. Subscribe to our free e-newsletter to receive exclusive content not available anywhere else. Also follow us on Instagram to get your dose of finance knowledge visually.
Bonds and Fixed Income