Saturday, April 9, 2016

The Craziness of Modern Pricing - Getting You to Shop

In our modern online retail world, the traditional brick-and-mortar stores have had to resort to price distortion to get people into the store.

Retailing has changed so much in the last decade.   Today you can buy almost anything online, and it is a lot easier, cheaper, and often less time-consuming than going to a store and seeing if they have things "in stock".  If you sell commodity items like auto parts or vacuum cleaner bags, your ass is being handed to you on a platter by the online retailers.   The motivation to buy things in a "store" has diminished considerably with a few exceptions.

And these exceptions are few.   Grocery stores are one exception.  People need to buy food, preferably fresh food, and it is hard (but not impossible) to ship that.  Yes, you can get a package of Omaha Steaks or Maine Lobster by overnight - sealed in Styrofoam with dry ice.  And yes, a lot of specialty foods are available online for far less than the local store has them - if they have them at all.  But for the most part, the local grocery store seems fairly safe and secure from online retailing, at least in the short-term.

I mentioned auto parts before and while it is true that online retailing is taking a bite out of their margins, a lot of people still trot down to NAPA or Autozone to buy a starter motor as they need their car fixed NOW and not next week when the UPS man comes.   For hobby cars, however, online sales have been a blessing, as it is far easier to get those hard-to-find parts.  If you are planning a weekend brake job on your old Toyota, you can get the parts online far more cheaply than you can at the local parts counter.

But what about other kinds of products?   For example, say you have a hobby such as knitting.   Odds are, you might be buying skeins of yarn from or some other online source.  After all, you buy these things in advance and the selection and prices online are better than "what they have" at the local craft store.   So how does the local craft store survive?

The answer lies in extreme pricing and couponing.  Places like Michaels, Hobby Lobby and Bed, Bath, and Beyond rely on ridiculous "discounts" and coupons to get people into the store.   We are talking routine discounts or coupons for 20-70% off. 

Back in the day, a coupon that gave you 5-20% off was considered a pretty good deal.  40%?  Unheard of, even in a bankruptcy sale.   Numbers like 50-70% are just a joke - a reduction from a made-up price.

I have a friend who falls for this.   They get these coupons and see these discounts and think, "Gee, I have to go to Hobby Lobby because I have a 50% coupon that is going to expire soon!"   So even though they have no need for anything from the store, they go and get 50% off (on one item) and then impulse-shop three more items (hey, they are marked-down 70%, right?).

As a result, they turn into hoarders - buying things at a "discount" convinced that "savings" equates into real savings (as in money in the bank).   But all it does is convert money into things that they may or may not need.   And pretty soon the house is cluttered with things which are often still in the packaging or even in the bags the store put them in.

Shopping is an addictive habit, as I mentioned before, and women are the primary targets.  But I knew a male shopper who ended up declaring bankruptcy over credit card debt, due to clothes shopping.  And we are talking clothes they never wore but rather left in the bag from the department store, jammed in a closet (why they didn't return the items and get a credit to their credit card is beyond me - seems a lot simpler than bankruptcy).   But people do illogical things.

Many Americans think such things are "normal behavior".   When it was revealed that Bernie Sanders had $25,000 to $65,000 in credit card debt the reaction was interesting.  Most folks looked at this as a sign of fiscal irresponsibility.   But a surprising number thought this was an indication that he was a "down-to-earth normal person, just like the rest of us!"   For some reason, a surprisingly large number of people think that debt is unavoidable in this country, and that stupid debt like credit card debt, is just a way of life.  But that is the subject for another posting.

The problem with this joke pricing arrangement is that forces consumers to play the coupon and discount game.   If you want to buy anything at Bed, Bath, and Beyond, well, you'd be an idiot to pay full price, when the 20% off coupons come in the mail every week - and they honor them even if the expiration date has passed.

In some ways, this form of marketing can backfire.   Mark wanted new beach chairs that sat up high (because as you get older and have back problems, low-slung beach-chairs are painful to get out of).   Driving past BB&B on the way to Dollar Tree, he spots two chairs that look promising.   It might have been a spot purchase, but for the fact we didn't have a coupon with us.   So we thought, "We'll come back later with a coupon" and after thinking it over, decided that no, we really didn't need the chairs.

But for every one incident like that, there are 10 more people who get the coupon and feel they "have to" use it before it expires, and the coupon and discount and sale has the intended effect - it gets people in the store where they see the carefully plan-o-grammed displays and decide they must have some "As Seen on TV!" accessory.

For brick-and-mortar retailers, insane pricing structures are the new norm.   There is no logical reason why you'd want to go to such a store, so they have to invent reasons for you to go.  And the premise of "missing out" on a bargain seems to be Pavlovian in nature.   Bank of America does the same thing with its "rewards" offers.  If you sign up for that nonsense, your e-mail inbox will be flooded with "rewards offers ending soon!" as if you should call 1-800 flowers and order some for the hell of it, just to get a 10% discount.   And I am sure some people do exactly that.

I mentioned earlier that the BB&B store is next door to Dollar Tree.   A more dramatic contrast in marketing styles cannot be found.   Dollar Tree, which is going like gangbusters (their stock has been on an upward trend as of late - up nearly 30% over last year) sells everything for a dollar and never has sales, discounts, coupons, or other insane pricing nonsense.   You always know the price at Dollar Tree, and you always know you are paying the same price as everyone else.

Contrast this to BB&B or other "sale" oriented stores.   You are left with a nagging doubt that you got the "best price" because there are so many coupons, discounts, and sales offered.  And your neighbor may have gotten a better price than you did.   What the actual price of an item is, is an irrational number.  The marked retail price is not even a placeholder, but just some insane made-up number that no one ever, ever pays.  And the BB&B stock price is in the toilet - down almost 50% since last year.

Yet, when stores who use this model of insane pricing (like J.C. Penny) try to move to an "everyday low price" structure, they fail miserably.  Why is this?  Well, I think in part is that the folks who were shopping (as opposed to purchasing) at J.C. Penny were the types attracted by insane pricing.   They wanted to score "discounts" and "bargains" even if they were illusory.  People who like fixed-pricing, like me, never set foot in the store.   Going to a fixed-price structure turns away the bargain "shoppers" but fails to attract folks like me.   Anything J.C. Penny sells, I would be inclined to buy online for less than their "bargain" prices.   They have no choice but to court the shopaholic shopper.

And therein lies the rub for today's marketer.   Come-ons and bizarre pricing schemes will never attract a purchaser like myself.   If a store engages in such practices, and they are the only available outlet I can find, then yes, I will wait for the sale or coupon or discount.   But for the most part, I will seek better bargains online.

As I noted in a recent post, the "shoppers" are attracted by different come-ons, like "buy three get one free!" which is the same as "25% off" - but folks like me are repulsed by them.   In the back of my mind is the thought that the real price of the goods has been obscured and that the "promotion" is nothing more than a smokescreen designed to prevent me from cross-shopping.   Rather than try to cross-shop tire stores for "sale" prices, I will just go online and get the tires I want at the best price.

It seems that there are two kinds of people in the world, the shoppers and the purchasers.   The latter is not enticed by come-on pricing, but rather, repelled.  The former won't buy unless there is a discount or sale.   But if there is a discount, the shoppers will buy things they don't even want or need on the premise it is a bargain.   So this kind of pricing is here to stay.

And it goes without saying, if you see signs for "sales" or coupons or discounts, odds are, you are not really getting any sort of bargain.