When the game show the Price is Right premiered in the 1970s, everyone assumed that the contestants most likely to win were the ones who were most savvy about the price of a toaster or a tub of margarine. All the flashing lights and circus barking no doubt were purposeful distractions from the fact that anyone playing was actually better off employing statistical analysis and game theory.
With variables ranging from showrooming and a widening wealth gap to big data and analytics -- even psychology, retailers these days have much to grapple with when it comes to assessing the price points of their products. Many questions always seem to remain though including: How to entice customers with special prices, and when it's okay, or even best, to raise prices.
Consumers want to save money, when they're up for the trade-offs
There is a psychology to pricing, and ways to work with consumers' mindsets that have varying degrees of effectiveness. Apparently, even though everyone knows about it, prices ending in .99 do get more sales. And while some consumers pinch pennies however they can, others will never pay the lower price on generic products because they only trust the name brand.
Warehouse retailers, meanwhile, create a club where consumers pay an annual membership price that works as a sort of down payment on their return to the store for more. Plus, shoppers pay for the savings further with other trade-offs: they must buy in huge amounts, with minimal bagging or customer service. Interestingly, Groupon may be poised to disrupt that model with its new Groupon Basics, an online warehouse of sorts that requires no membership.
Amazon has taught shoppers that almost anything might be cheaper
These days, the web and mobile make it easier than ever for shoppers to compare prices. Showrooming is a phenomenon that retailers have had to embrace by offering price-matching, in order not to lose the sale.
Amazon has proven that it’s willing to lose money by out-pricing its competition to drive sales, mainly on household items and books that can be found at several other retailers. A few years ago many thought Amazon went too far, when it enticed customers with an extra 5% discount to scan price codes on books at their local bookstores, but buy them at Amazon instead using their then-new app. The promotion helped paint the company as ruthless.
And price-matching Amazon isn't necessarily about saving each individual sale. When Target instituted its price-matching policy, it had it sights set mostly on the e-retail giant, with officials saying they didn’t think many shoppers actually compared prices on things like detergent all that often, or that the price-matching would cost them much. It was more that Target didn’t want consumers to think that Amazon was the only place to get a good deal.
Consumers now have all kinds of ways to get the lowest price
In addition to loyalty programs that send customers coupons and price breaks, consumers now can sign up for several apps like Hukkster, Shop It To Me, RetailMeNot, and Gilt, among others that do a lot of the work in finding the last percentage off before a customer checks out online.
Patient consumers can find last year's or last season's goods on flash sites or eBay, not to mention good old-fashioned retail sales at brick-and-mortar stores — something that irked Lululemon recently, when customers began to re-sell their clothes online at lower-than-retail prices.
Price isn’t everything
But local booksellers — the first retailers to suffer under the Amazon effect — are among some of the most successful in U.S. retail these days. It's not that their margins are high exactly, but that they've survived the great disruption presented to them by Amazon, which at first, it can be hard to remember, was merely an online bookseller.
Thanks to buy-local campaigns, plus many readers' love of browsing and getting recommendations from bookstore staff, several independent bookstores nationwide have found that they’ve survived quite well. That's despite the fact that many of the same books in store can almost always be found on Amazon and other online sellers for quite a bit less.
Price signals a lot about a brand
In fact, upscale designers and retailers like Michael Kors don’t fuss much about how big the numbers on their price tags are. If anything, when wealthier consumers are concerned about price at all, they may be more interested in actually paying more. Coach Inc., in a move to position itself as an extremely high-quality, upscale brand, recently announced that it would be phasing out bags available at $300 to $500 to focus on products with retail tags of $600 and up.
And when J.Crew wanted to bring in budget-minded consumers, rather than lower prices on its own apparel or introduce a wider range of prices within its flagship brand, it has reportedly opted to devise a lower-cost sibling brand, J.Crew Mercantile. Much as Ann Taylor did with its Loft stores and Gap Inc. with its Old Navy brand, J.Crew would be protecting its own range of price points by creating another brand to entice those shoppers with thinner wallets.
Price has its cost — and not just to the bottom line
Low prices, especially in fast fashion, are extremely attractive to teens and other consumers with tight budgets. But some consumers, especially many in the millennial generation, are increasingly concerned about the effect extremely low prices may be having on how garment workers are treated as retailers try to find ways to trim their costs to the bone.
Despite the recent moves by many retailers to get on the fast-fashion bandwagon, some observers aren’t sure how long the model will remain successful. Designer and chief creative officer Michael Kors, for one, doesn’t believe teens will remain happy with cheap, super-trendy, and essentially disposable clothes.
“While Americans are fond of low prices for clothing, some are possible only because workers in Bangladesh (among other countries) toil in sweatshops for meager wages, in dangerous conditions,” filmmaker Nathan Fitch, who recently released a documentary, Cost of Fashion, wrote in the New York Times last week. “This needs to change.”
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