It's a sad state of affairs in American consumerism that folks are attracted more to discounts than low prices. Johnson's plan made sense: lower prices to what average selling prices are during promotions and cut back on promotions. Lower noise. Less discount anxiety. Too bad consumers aren't strictly speaking rational in this way (1, 2).
People don't buy discounted items just because the price is low.
We buy discounted items because discounts tell us which items to buy.
For a given product, there are usually several competing choices, and most people don't have enough time to evaluate whether each one is a good deal for the price it's offered at. So the easiest way to select is to just pick the one that's on sale--or if they're all on sale, pick the one that appears to have the biggest discount relative to the MSRP.
The discount also tells us "you should buy this now, because if you buy it later, the price may go up."
Without this important signal, customers don't really know which one to buy, plus there's no urgency to buy the item now, because it's always that price.
So, while Johnson's approach may have "made sense," and may have worked for Apple products because their market position and product lifecycle makes discounts unnecessary, this strategy really didn't play to consumer psychology, at least in the apparel space.
Exactly. One of the most important concepts out there is urgency to buy. One of the reasons car dealers can't sell at fixed prices. They can't create artificial urgency as easily by making the deal "only good today". If you know you can buy the car (assuming of course no supply issues on the model you want or color features etc) in a week you don't have an impetus to get off the fence and decide.
Separately and related to this is not to make open ended offers when giving pricing if possible. Otherwise people are definitely (from my many years of experience) less likely to make a commitment. This of course varies with the product, price and other factors obviously.
There is absolutely no question that sales, coupons and discounting and specials work.
Zara's strategy involves stocking very little and updating collections often. Instead of other brands that only update once a season, Zara restocks with new designs twice a week, Suzy Hansen wrote.
That strategy works two ways, according to Hansen. First, it encourages customers to come back to the store often. It also means that if the shopper wants to buy something, he or she feels that they have to purchase on the spot to guarantee it won't sell out.
The discount also tells us "you should buy this now, because if you buy it later, the price may go up."
But who cares if it's average or even poor value at the current discount? My thinking should be, "which item offers me the best value as priced right now"? I think what you're suggesting is that the "full price" gives customers a "hint" about how much to subjectively value the item, which is also sad because the last person I want telling me how much something should be worth is the person selling it to me.
It's not a matter of "sad" or not. It's a matter of: how do you rationally evaluate the value of one crappy garment versus another? There is total information asymmetry, since you have more or less no information about the garment other than it was made in Vietnam. So you use the retail price as a signal because that's all you have.
You're running something of a fool's errand arguing this point. Of course you're right. It's sad on so many levels that retail stores are important, that fashion is important, that fads, trends, and other trivialities are important.
However if we accept that all of the above are inevitable, then we must accept a friction-free experience as valuable. And the poster above is pointing out that whether it's logical or not, the feeling of "I made the smart choice!" by buying the discounted option, provides this easier experience.
At a high level human choices aren't rational which is sad, but we must accept it.
>At a high level human choices aren't rational which is sad, but we must accept it.
I can accept that but I have to ask: who would have the time to make a deep, rational analysis of the value for everything they buy? At some point I think the quick "discount heuristic" is the more rational choice because it saves time.
On the other hand, for big ticket items (cars and houses) I'd hope people would spend a lot more time making a rational choice.
I recently purchased a projector from amazon. I actually used the original price in my comparisons. For example, a heavily discounted projector with few reviews left me wondering the reason for the discount. Overstock? Overpriced for its actual performance? I felt much safter purchasing a projector with a relatively modest discount.
Is that box of crackers worth 4.29, which is its price when other crackers are on sale, which is half the time, or is it 2.99, its own sale price, which it is the other half of the time?
I don't see what is that sad (or even American) about it. Rationally, yes, discounts are not better for consumers than low prices. But humans aren't rational creatures, and nothing done by JC Penney is going to change that.
After all, isn't not accounting for customers' irrationality in your business also irrational?
What's sad is that these tendencies can be exploited (see attached pictures in my original post) and that we'll subject ourselves to all kinds of stress with regards to deal hunting just to find a bargain that might not end up being a bargain.
And while I know that humans aren't rational creatures (in fact it was my research for a number of years), some of this can be fixed with market leadership and "training" customers to understand that they're acting against their best interest by demanding an economy in which marked prices are in fact price anchoring deceptions.
It's not silly at all, think of how many people have done amazing things for the future of humanity on the basis of "this sucks, it should be better". Identifying deficiencies and looking for ways to improve them is the ethos of building a product. I don't see why this concept should be excluded when it comes to human rationality, which in many ways, is an extension of education, which is a huge opportunity waiting to be tapped.
While it is true that we might increase the rationality of people via education, we are never going to be able to make people anywhere near completely rational. Anyone who would think otherwise has clearly not studied much cognitive psychology or neuroscience.
It's not even clear that fully rational humans would be a good thing. Great art, for instance, doesn't come from being rational. It comes from people with irrational drive and vision.
Just to put a needle fine point on it: Wal-Mart has "always low prices"... for your area.
Their data mining lets them know exactly what to price Household Paper Products in your zip code so that they're always lower than the surrounding competition while not leaving money on the table. They're not targeting the lowest possible price system-wide.
"Walmart, which doesn't really use discounts except to clear inventory, and advertises "always low prices"."
Walmarts game is a bit different and they can pull it off because of their unique positioning, size and buying power. They also get you to buy things you don't need by their merchandizing. (Similar to how you go into a supermarket for one thing but end up with 10 other things.)
[Walmart] get you to buy things you don't need by their merchandizing
Interesting... how do they do that? I've always found Walmart's retail experience to be about one step above a warehouse club. I tend to go in for what I want and if it's in stock (often times not the case) I buy it and GTF out.
Congratulations, you are not their primary consumer: Impulse buyers who even if they have a set list of things they are going to buy end up going off-list nearly every time. They need that DVD from the bargain bin, they need that extra box of 22lr ammunition, they need that BPA-free water bottle because the one at work (also impulse bought from Walmart) is starting to crack after 3 months of use.
Exactly. Another thing is that with regards to this "is starting to crack" the more crappy stuff you buy that needs to be replaced, the more times you are back in the store looking for a replacement and starting the cycle again.
It would be sad if this were taken to be a failure of low prices vs discounts. There are plenty of other reasons why JCP is still failing. There's a lot of inertia to its existing reputation and customer base, for starters.
I think the more obvious problem is they're a low-margin business at a time where being low-margin is difficult unless you're the biggest guy with the lowest operating costs.
I think chasing the discounts may be part of the excitement of shopping for some people. Someone was explaining how Kohl's does things, and it is completely insane, like there is an optimal one-hour window for buying certain things when the Power Hours and Door Busters and various other promotions combine with your double Kohl's Cash to get your Docker's socks for 85% off if you give them an email address.
I don't like to chase down discounts, but I am totally addicted to treasure hunting in thrift stores. When I get a beautiful vintage suit for a few bucks, I feel like the smartest guy ever to put on clothes.
While anecdotal, I can personally confirm this. my wife LOVES shopping for "the deal" -- it's all a game to her. I tease her a lot because there are countless times where she comes home with widgets that we don't immediately need, but were purchased solely because of their discount %.
For her, something at a low price point to begin with appears cheap, however you take that same item and slap a high MSRP on it with a 50% discount down to that same first price point... now we're talking!
All that you need to do is turn it into a real game by having a website which let's you compete against your friends and strangers for who got the "best deals". Turns it into a game that the retailer is bound to be very happy about.
Ever shop at one? The layout was really bad. Then to top that off where you found signs proclaiming the low price and such you still had other signs indicating discounts!
Comparing them to Sears, Sears practically screams good deal. Its just up to you to figure out if its not. Plus Sears has Craftsman which sets it apart from other Mall retailers. Not sure what JC Penny has.
The only good job I will give them is, of the few sales people I met there they at least would help me. That stood out because in Macy's I was ignored even when I asked - apparently men are not allowed to shop at the mall or certain stores.
People are attracted to discounts because people love maximizing value. The standing-in-the-grocery-aisle, blink-of-an-eye assumption that people make is that the value of any item on sale for its original price is equal to the value of any other item on sale for its original price, meaning that items with the biggest discounts offer the best values.
I'd love to read some research on why consumers are so infatuated with discounts/sales. We've all had friends/spouses boast about buying things on sale; it doesn't make sense to me but it does to most people. I'm very curious about the psychology behind this.
i am pretty sure you'll find it described in "thinking, fast and slow" by daniel kahneman - http://www.amazon.com/Thinking-Fast-Slow-Daniel-Kahneman/dp/... (i imagine that the "fast heuristic" is to make immediate, local comparisons, which discounts favour; recognising persistently low prices means more reflection and long-term memory; people use fast heuristics rather than slow logic most of the time).
it's a very good book. i just gave a friend a copy today (if anyone in santiago is looking for a spanish language copy it's sold out in all the shops but bazuca.cl still have it in stock - i guess no-one thinks of buying books there!)
1)http://cl.ly/image/2y1T1L2M1s0e 2)http://cl.ly/image/1a3D3c1J1Z0I