This is less of a gimmick, and more a way of life in the
retail world: Giving products a higher "original" price than you intend to sell
them at, and then marking them down so that people feel like they're getting a
deal.
Ron Johnson saw the foolishness of this system when he took over at J.C. Penney, and set out to change it. And while his execution left something to be desired (to say the least), we liked his revolutionary idea to do away with sales and promotions and just offer honest low prices from the start.
As the company has backpedaled away from the policy and reinstituted sales, it's revealed a lot about the craziness of the retail industry's mark-up-to-mark-down strategy. Earlier this year it had to fend off accusations that it was pushing suppliers to make up 'suggested' prices to make its own prices seem lower. Shoppers have found higher-priced stickers slapped on top of the old ones, clear evidence that it was raising prices just so it could lower them through sales and coupons. And former employees have come out to accuse the retailer of misleading consumers with its new pricing strategy.
To be clear, there is nothing unique about what J.C. Penney is doing now -- it's just more visible, because we can actually see it raising prices after experimenting with a more honest pricing strategy. When Banana Republic prices its dress shirts at $80 and then has sales every other day offering 30% or 40% off, it's not being generous. It's just taking a $50 shirt, marking it up to $80, and then discounting it to make you feel like you're getting a great deal on an $80 shirt.
It's an annoying marketing gimmick. And as Ron Johnson's fiery demise proved, it's never going away.
Marking
Up to Mark DownRon Johnson saw the foolishness of this system when he took over at J.C. Penney, and set out to change it. And while his execution left something to be desired (to say the least), we liked his revolutionary idea to do away with sales and promotions and just offer honest low prices from the start.
As the company has backpedaled away from the policy and reinstituted sales, it's revealed a lot about the craziness of the retail industry's mark-up-to-mark-down strategy. Earlier this year it had to fend off accusations that it was pushing suppliers to make up 'suggested' prices to make its own prices seem lower. Shoppers have found higher-priced stickers slapped on top of the old ones, clear evidence that it was raising prices just so it could lower them through sales and coupons. And former employees have come out to accuse the retailer of misleading consumers with its new pricing strategy.
To be clear, there is nothing unique about what J.C. Penney is doing now -- it's just more visible, because we can actually see it raising prices after experimenting with a more honest pricing strategy. When Banana Republic prices its dress shirts at $80 and then has sales every other day offering 30% or 40% off, it's not being generous. It's just taking a $50 shirt, marking it up to $80, and then discounting it to make you feel like you're getting a great deal on an $80 shirt.
It's an annoying marketing gimmick. And as Ron Johnson's fiery demise proved, it's never going away.
...Or "97." Or "95." The last digit might vary, but the
goal is the same: To make the price seems a little lower by knocking a few
pennies off. A $5 burger becomes a $4.99 one. A $200 TV becomes a $199.99 TV.
What, they think we won't notice?
Well, here's the thing: We might notice, but it still makes a pretty big difference in our buying behavior. A study conducted a few years ago asked participants to choose between a $2 pen and a $4 pen. When the prices were altered so that the choice was between a $1.99 pen and a $4 pen, participants were suddenly more likely to go for the cheaper pen. Make it a choice between a $2 pen and a $3.99 pen, and suddenly the pricier pen became more attractive.
"Consumers should be aware of the subconscious tendency to focus on the leftmost digits of prices and how this tendency might bias their decision-making," concluded one of the authors.
And even if consumers aren't aware of this tendency, retailers certainly are. Unfortunately, that experiment makes it clear why this is another gimmick that will never go away: No store wants to be the first to round up its prices and be perceived as more expensive than the competition.
Well, here's the thing: We might notice, but it still makes a pretty big difference in our buying behavior. A study conducted a few years ago asked participants to choose between a $2 pen and a $4 pen. When the prices were altered so that the choice was between a $1.99 pen and a $4 pen, participants were suddenly more likely to go for the cheaper pen. Make it a choice between a $2 pen and a $3.99 pen, and suddenly the pricier pen became more attractive.
"Consumers should be aware of the subconscious tendency to focus on the leftmost digits of prices and how this tendency might bias their decision-making," concluded one of the authors.
And even if consumers aren't aware of this tendency, retailers certainly are. Unfortunately, that experiment makes it clear why this is another gimmick that will never go away: No store wants to be the first to round up its prices and be perceived as more expensive than the competition.
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