Are department store prices phony?
Through a special arrangement, what follows is an excerpt of an article from Retail Dive, an e-newsletter and website providing a 60-second bird’s eye view of the latest retail news and trends.
For many purchases, it’s hard to know what the fair price is. That’s in part because of the constant barrage of sales, but also because many retailers aren’t really ever charging the "original" price. The listing of discounts over essentially fake original prices is known as "price anchoring," used by many retailers to varying degrees.
But regulators and courts don’t like it when retailers take the practice too far because they consider it deceptive. J.C. Penney, where former CEO Ron Johnson was highly criticized for replacing price anchoring with "always low prices," is being accused in a class-action lawsuit of misleading shoppers with most, if not all, of its price tags.
Moreover, a 44-week survey by Checkbook.org of several national retailers found that many items listed as "on sale" rarely, if ever, sell at any other "regular" price. While some conducted valid sales on selected merchandise, Checkbook executive editor Kevin Brasler called some of the pricing policies "disturbing."
"What you need to know is that in many stores the sales just never end, or hardly ever end," Mr. Brasler said to Komo News. "The worst offenders, for sure, were Sears, Kohl’s and, for many of the items we tracked prices on, Macy’s."
Sources: Macy’s, Sears
In response, Macy’s said the survey didn’t account for the fact that it promotes "by day, not by week." Pricing for each item is also based on factors including the nature and seasonality of the merchandise, and customer response. Macy’s added that some items rarely go on sale prior to final clearance while others go on sale more frequently as part of promotional events.
"Macy’s prides itself on offering interesting merchandise which provides great value to the customer," Macy’s said in its statement. "We strive to comply with all laws and regulations, which generally allow for flexibility in connection with price promotions to allow retailers to respond to business trends. If a pricing error is brought to our attention, we act quickly to correct it."
Sears responded similarly: "We are uniquely positioned to provide discounts to our members and customers in a number of different, legally compliant ways, including things like member pricing, store or online only promotions, clearance offers, and offers from third-party marketplace sellers. It is unfortunate that Checkbook.org did not appear to take these factors into account before making its assumptions."
- Discount-mania: Are the days of charging full price over? – Retail Dive
- Will class-action suit against J.C. Penney force retailers to pull up ‘price anchor’? – Retail Dive
- Sale fail: Survey finds many items rarely sold at ‘regular’ price – Komo News
- ‘Fake’ Sales Trick Customers at Major Stores, Study Says – NBC News
Discussion Questions
What do you think of the practice of price anchoring or listing discounts based on an original price that is rarely or never available? Despite J.C. Penney’s past missteps, does greater pricing transparency ever result in higher sales?
Poll
BrainTrust
Bob Phibbs
President/CEO, The Retail Doctor
And what exactly is “price transparency”? Seriously.
If I buy it for $50 and sell for $200 because my rent is on 5th Avenue in NYC and I can get it — is transparency supposed to reveal what it cost me to make that item available on 5th Avenue?
In retail, there’s always someone cheaper.
Customers know the game and are willing to play it. Outlet malls may make customers feel they are getting a bargain price so they can justify it to their friends — but knowing they are getting a bargain? I don’t know who or how one could legitimize that feeling.
As to Ron Johnson, just to reiterate: Worst. Makeover. Ever.
I think most regular shoppers are capable of recognizing the pattern of what goes on sale, when it goes on sale and what items are always going to be advertised at “40% off” — there is a touristy art gallery in my neighborhood that has had a “40% off/Going Out of Business” sale for the past four years. Shoppers buy items in part for the thrill of the sale, but ultimately they are making decisions based on if they think the item is worth the price they will be paying (sale or not). To me, this is a relatively harmless practice.
The barrage of promotional events, often with weeklong sales overlapped by one-day sales and so forth, has created the impression that “everything is always for sale” in many promotional department stores, and it’s a powerful marketing tool. But I’m guessing that a study of the actual number of days items are on or off sale might paint a different picture.
Most of the stores mentioned in the story have to deal with the reality of various states’ regulations, especially when they operate coast-to-coast. So there is probably a science applied to the establishment of regular prices, followed by a strict calendar of “on sale” and “off sale” days.
As a hypothetical, just because Macy’s puts a private-label polo shirt into every one of its “one-day sales” doesn’t mean that the goods are on sale 365 days a year. And just because they do sell goods at “regular price” some of the time doesn’t mean they can compel customers to pay full price for them.
It’s foolish to pay full price for something at Macy’s. Macy’s and Kohl’s have perpetual sales, and not just on a few items. Whether this is worth a lawsuit is another story. Retailers like Macy’s and Kohl’s want consumers to think that they are getting a good deal. Consumers should know by now how to play the game.
In a word, this practice is increasingly “archaic.”
The reality is that that “there’s an app for that.” Consumers are increasingly checking prices on their smartphones. And there are a host of new apps that will track actual street prices on almost any type of product.
Today we literally have price transparency daily if we want it. It does not matter what the retailer posts as “everyday” or MSRP pricing. The consumer will vote on how much they are willing to pay based upon their experience, service levels and the convenience of having the merchandise right now.
Oh by the way, if you have checked the financials of Sears lately, you have to wonder how long they will survive based upon their pricing strategy.
Retail pricing may be mathematically calculated in an internal business plan but out on the shelves pricing, in the end, is dictated by shoppers and their willingness to spend money on an item. Whatever games are played by retailers are typically understood by shoppers. In many respects the game of shopping can be compared to a chess match where every move is calculated, as is every counter move.
The objectives of each player is clear: for retailers it is to maximize margin and profits, for shoppers it’s to get the lowest price for an item they would like to purchase. Game on!
Pricing anchoring is just another tactic in the game. Mr. Johnson’s tactic of Everyday Low Prices (EDLP) at J.C. Penney wasn’t unique. Lowe’s has been using EDLP for years and continue to succeed. The problem at J.C. Penney was that Mr. Johnson tried to change the rules of the game for them without understanding how J.C. Penney shoppers played the game. The reaction to the rule changes was clear and swift.
Let the games continue.
I’m reminded of the reverse-engineered Karl Marx statement.
To each according to his greed, from each according to his gullibility.
Department stores and discounters have long been in need of fireproof pants. Most shoppers know that “sales” must be taken with a grain of salt, and as pricing apps on phones become increasingly common, this whole debate will vanish anyway in due time. At some point a tipping point will have to be decided upon by each retailer on whether it is still better for profits to continue playing this game, or to get out of it because it is bad for a company’s reputation. And of course all this will increasingly have more retailers looking at new methods/locations of distribution.
If the “retail” price is really an inflated price — and the customer discovers that they’ve been duped as a result of a questionable (I’d almost used the word unethical) pricing strategy — they will quickly lose confidence in that retailer. No trust can turn into no sale.
Frankly, I don’t know of any major retailer who doesn’t play this game. The difference now is thanks to the internet, there are more savvy consumers who know that the MSRP or original price marked through on the tag may be what the retailer thinks the item is worth, but not what it will eventually sell for. Unless the items are limited edition runs (e.g., Jason Wu for Target), consumers know (or are learning) when to wait for the mark down.
In my regional market, as the “premium outlets” get closer to Atlanta, the price difference is sharply reduced and a shopper armed with a smartphone and scanning app can find the same deal (or a better one) in the malls or surrounding strips without making a specific trip 50 miles away.
Unique concepts, carrying brands that reflect consumers wants and needs and creating a sense of urgency are the elements that will convert shoppers into buyers. Unless you are marketing to the “lowest price” crowd, artificial pricing is out the door.
This strategy is as old as the hills and despite it being pretty common knowledge, consumers are still enticed by the deep discount percentage…even if they know it’s an illusion.
I think there is some value for department stores in everyday values on certain items, but if you do that across the board, you will lose every time.
Psychologically, anchoring works—see Cialdini’s Influence: The Psychology of Persuasion. Does greater pricing transparency ever result in higher sales? Well, it seems to work pretty well for EDLP providers such as Walmart. At the end of the day, I view anchoring as short term gain but at the cost of shopper trust. Anyone shopping under those circumstances is going to become conditioned to looking for sales and discounts. Personally, I would rather invest in increasing the trust for the long term.
Is “anchoring” in the department store sector any different than “comparable pricing” claims in the off-price sector or the outlet mall sector? Does any shopper think that any “anchor” or “comparable” price is real? (Well, maybe a few, but can you protect all the consumers all of the time? There is always a customer for that bridge in Brooklyn.)
This is the last attempt by a dying retail model to deceive consumers into purchasing products because of the perceived “increased value” which these products represent. The Internet is the true dragon slayer here, since a quick scan, or input of a product description will rapidly determine what the price really markets for, and which other retailers offer this pricing. The Internet will be keeping retailers honest, on track, and offering consumers the greatest amount of information regarding a purchase, before they purchase, more and more….