Why we buy cheap

24th May 2012

The latest to announce a bumper balance sheet is much-maligned airline Ryanair, reporting that its profits have climbed 25% to a staggering £405 million. Meanwhile, shareholders can look forward to their second ever special dividend, a cool 27p per share.

Another budget carrier, Asia Aviation, owner of the Thai affiliate of Malaysian-based budget carrier AirAsia Bhd, is to raise $143 million from its Thai IPO.

While part of Ryanair's profits have been achieved amid – and partly as a result of – carnage at the heart of Europe's aviation industry, this isn't the sole reason.  Ryanair has managed to boost its profitability this winter by grounding 80 airplanes and raising its prices by an average of 17%, broadly offsetting the 18% increase in fuel prices, says The Motley Fool.

It also seems passengers are willing to put up with whatever ruses are used to wring more money out of every flight as these airlines battle rising fuel costs – as long as they're keeping a tight rein on purse-strings during tough times.

Primark has also been boosted by bargain hunters. Meanwhile, high street stalwart Marks & Spencer has faltered and seen its profits sink as it battles against the likes of Primark and TK Maxx. And boss Marc Bolland was forced to slash his sales targets for the retailer as he unveiled its first fall in profits in three years.

Why we love a bargain

Of course, the rise of bargain products and services can partly be attributed to ever-present austerity.

But also perhaps financial crisis has proved the catalyst for our desire to brag about a bargain. We are happier to now proudly assert that a new dress cost just £20 when receiving a compliment – we know we need to be savvy shoppers in this climate, and save our pennies.

This is seeing quality high street manufacturers – and the more expensive airlines – lose business to cheaper ones which enable us to buy the same or a similar product for less.

After all, how do you feel when you bag two shirts for the price of one, or find that half-price weekend break? Most of us are searching for ways to slash costs in an unpredictable financial climate.

And any of us searching for ways to cut costs will find a massive range of options out there. From voucher codes to buy-one-get-one-free (Bogof) deals in shops, and a wide range of discount stores – with even Poundstretcher opening its doors in Dubai – the different ways we can maximise our money is growing.

Luxury bargains

But this doesn't mean that we only stick to essentials when finding deals in this climate. According to Psychology Today, the discounts on offer make us more likely to indulge in cheap treats and indulgences such as perfume and holidays rather than stick to ‘boring' and responsible purchases. So we're more likely to buy a half-price bottle of wine than opt for a two-for-one deal on toilet cleaner.

Shoppers rack up bills on these indulgent ‘bargain' goodies, safe in the belief they have still managed to save money. Have you ever considered the cost of all the ‘cheap' deals you've opted for over the years?

How to profit from this trend

Perhaps, to make these habits work for you, consider investing in stock in these companies that are set to benefit for the bargain-hunting trend.

However, airlines' profitability is notoriously fickle, says The Motley Fool. Ryanair admits that, in part, its above-target performance may be simply to cutting capacity, a lack of cancellations and reduced de-icing costs. And the cost of fuel risks driving down future profits.

Both Ryanair and easyJet are reasonably profitable, but neither has a long record of paying dividends or of market-beating growth.

However, when it comes to other businesses, such as Primark, it may still be worth taking a bite of the cherry. However, investing in their shares may have been more worthwhile last August when the general market sell-off saw them dip below £10. Still, it's worth keeping a beady eye on budget brands – to consider which one might be next to benefit from this consumer trend.

 

More on Mindful Money:

Buying a start-up can be murder incorporated

The economics of the Olympics

The worst recovery in history

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