Thursday, January 26, 2006

59. Sales have him seeing red

Experienced shoppers (which I do not claim to be) know that retailers play a lot of games when it comes to sale promotions. Retailers may use advertising, product placement, the "suggested" retail price or discounts to gain an advantage in its pursuit of customers. Examples include promoting "loss leaders," products sold at a loss just to get people into the store in hopes that they will purchase additional items. Another is placing the sale item in the back of the store, forcing consumers to walk through their stores to get to it. Again, the idea is that consumers will consider other products along the way. A retail favorite is the "bait and switch," the offering of an item in insufficient quantities for demand, in hopes that the consumer will settle for a similar, more profitable alternative.

Retailer may also play with the numbers, either through pricing, negotiation or "tricky math." For example, a furniture store may normally sell a couch for $500 that retails for $700. To begin, there should be some attention to the idea that some "retail prices" are ridiculous and represent, in the market of supply and demand, a price that the merchandise rarely, if ever, actually sells for. If the furniture store offers a 50 % off sale, and considering that I know the couch normally sells for $500, my reasonable expectation would be that the price of the couch would be $250. However, to my disappointment, I will soon learn that the 50 % off is off the suggested retail price of $700, not the store's normal price of $500. It says that too, usually in the small print. The sale is 50 % off of the retail price, a price that the couch never actually sells for. Thus the price of the couch will be $350.

The same game is played with the discount promotions, such as a 40% off sale, followed by the "take an extra/additional 10% off." The total discount is not obtained by adding the 40% off to the 10 % off. In other words, it is not a 50% off discount. If a product retails for $100, then the first 40% off makes it $60. The "additional 10% off" is then taken off that price for another $6 discount, making the actual sales price $54, not the $50 shoppers might be expecting.

I found one shopping experience, however, to be a bit different. I was in the market for a new pair of eyeglasses. The insurance/ vision discount program is pretty simple. For the price of my premiums, I was to receive $100 for the cost of the frames. Ignoring, for now, the costs of the lens and extras, I began looking for frames. In this case, the math is simple. If I choose frames that cost $100 or less, I pay nothing. If I splurge and choose a $200 pair, I pay the difference- $100. Fair enough.

I found several retail/department stores promoting "40-50% off" sales on their frames. I found this quite exciting and working backwards reasoned that now I could purchase a frame that normally retails at $200 for the cost of my insurance. The $200 frames (say) at 50% off would now sell for $100- just what my insurance will cover.

However, my excitement was quickly squashed, for looming large was the small print. The sale (or offer) does not apply to those individuals with insurance or a discount vision plan. So if I have insurance, the $200 frames cost my insurance company $100 and me $100. If I do not have insurance, the $200 frames are 50% off and cost me $100. Either way, it costs me $100!

Noticing that a "1" had been handwritten in front of a $89.00 price tag, I asked about the normal retail price in lieu of the current sale. The salesperson informed me that it really was the retail price; but that they have a sale each and every week and that the retail price may fluctuate from month to month. My first question was that if you only sell one product and that product is on sale, through one promotion or another, every week, is it still a sale? A sale promotion is usually defined as an activity to boost the sale of a product through a number of mechanisms, most notably a "temporary price reduction."

My opinion is that if you are selling a product and you are willing to accept $100 for it, then it should not matter who is paying that $100. Because an individual has obtained insurance, at a cost to either him or her self, the company they work for, or both, what is the justification in no longer agreeing to sell that product at the same price the company would agree to sell it to an individual that does not have insurance? It appears that eyeglass pricing is working across two markets, the supply and demand of customers that have insurance and those that do not have insurance.

In a way, I appreciate the concept- I mean consider the possibilities. We might then be able to control the markets of products based on personal financial situations or inherent opportunity. We might even include individual merits. Let us say that I am in the business of selling cars. I propose then that I can sell one to a hard working individual, maybe somebody with three kids working two jobs, for $10,000 and then the same car to an individual who inherited a large amount of money for $20,000.

What is the thought process behind not offering the sale price to those that have insurance? Speaking statistically, one idea might be that those that do not have insurance would not be able to afford frames at retail price. Lowering the price not only makes them affordable, the expense probably finds its way onto the department store's credit card at 21% interest. Those that have insurance are probably more inclined, and better able, to pay the higher prices- perhaps also using the charge card to pay the difference (there's a reason every department store cashier asks, "Can we put that on your charge card?").

As for offering a sale every week, my guess is that retailers realize that consumers feel good when they purchase something on sale and the fact that eyeglasses are such an infrequent purchase, few realize that they are almost always on sale. A sale now defined as a market-driven permanent type of temporary price reduction- that is, unless you have a vision discount plan.

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