A couple of weeks ago I was invited to do a radio interview with NPR for its MarketPlace business segment.
The topic was retailer’s pricing practices.
Right down my power alley, so I was amped.
I took the interview seriously – even did some research.
Went to the studios for the interview … which was recorded.
After the allotted 30 minutes, the reporter asked me if I could continue for another 3o minutes.
Sure.
I expected she’d pull a couple of 15 second sound bites out of the 60 minutes.
To my dismay, all 60 minutes of my “filet” hit the edit room floor. Ouch.
Below, I’ll give my hypothesis for what happened … here (based on my notes) is what I said … some pretty good stuff – if I must say so myself.
Studies consistently show that consumers’ have very imprecise knowledge of prices.
Very few consumers are even able to recall — within 5 or 10% the price they paid … even for recently bought or frequently bought items.
The exceptions are so-called “signpost items” — such as a gallon of milk or a 12-pack of Coke. Consumers often use those items as “sample precincts” used to implicitly judge other prices in a store.
“If they’re priced right on milk, they must be priced right on other products”
* * * * *
People look for “cues” when evaluating a product’s price.
The words “free”. “new” and “sale” are probably the most impactful in a marketer’s vocabulary.
“Sale” takes on a particularly strong meaning when it’s supported by a comparative price claim … versus competitors’ prices … or versus a self-proclaimed “regular price”.
Since people tend to have imprecise knowledge of prices, they often anchor their price perceptions on stated regular prices and react — or over-react – to the implied discounts.
Shoppers conclude – sometimes erroneously: The bigger the discount, the better the deal.
* * * * *
Legally speaking, a “regular price” is defined as a price that was offered for a meaningful length of time and at which a substantial amount of sales were made.
Of course, the terms “meaningful length of time” and “substantial sales” are subject to interpretation and often tough to pin down in practice.
It boils down to whether a good faith effort was made to sell the product at its “regular price”.
* * * * *
While the FTC has legal jurisdiction over unfair marketing practices – including “fictitious price claims” – it hasn’t brought any cases in the past 30 years.
The FTC has largely delegated enforcement to the states and localities … which have a crazy-quilt of statutes that are selectively enforced, typically when there is a veritable groundswell of consumer complaints.
Even then, cases are hard to prove and any penalties are relatively light slaps-on-hands.
* * * * *
Some retailers make heavy use of what’s called “high-low” or “was/is” pricing tactics.
That is, they run frequent sales that emphasize the discount from so-called regular prices.
Kohl’s is famous for using the “was/is” tactic; so is the men’s clothing chain Jos A Banks – which routinely run sales touting “buy 1 suit at regular price and get 2 for free”.
If anybody buys anything at those stores at “regular” prices, they should look over their shoulders to make sure that Darwin isn’t chasing them”
* * * * * *
These high-low tactics are a relatively benign form of marketing hype.
Savvy buyers ignore everything but the bottom line price that they’ll be paying.
They ask themselves do I want to buy this product at this price?
Sure, they might want to shop around to see if they can find a lower price someplace else, but …
What somebody else may or may not have paid for the product at another point in time is largely irrelevant … except for bargain hunter’s bragging rights.
The real question is whether you want to buy that shirt for $19,99 or not.
* * * * *
Further, strict enforcement of the statutes may actually have a harmful effect on consumers.
Think about it … why force a retailer to sell more stuff at a high price to satisfy a statute?
That would result in consumers – on average – to pay more for products
* * * * *
I get more concerned with hidden charges that aren’t reflected in the prices that customers think they’re paying.
For example, shipping & handling charges that far exceed the cost to ship or handle …
Or, stripped down products that don’t include all the necessary components … like computer peripherals that don’t include the connecting cables … or printers that come with toner cartridges that print a minimal number of copies.
Often times, buyers don’t know what hit them until after-the-fact …
Basically, the piece that aired was dumbed down to “lots of stuff is on sale … really, LOTS of stuff” A surprisingly light piece.
My hypothesis: the reporter went into the story expecting to nail retailers (like Kohl’s) for deceptive practices. My view was that the “was-is” pricing tactic is pretty benign and that shoppers should just focus on the current price. That didn’t support the story line.
And, I doubt the reporter could find anybody who got very excited about whether retailers’ “regular” prices really were regular prices.
So the storyline fell apart and “lots of stuff on sale” became the emphasis.
Woulda thought the Darwin line would make the cut.
Oh well … it made the Homa Files !
>> Latest Posts
SHARE THIS POST WITH FRIENDS & FAMILY
The Homa Files 