Blog author: jsunde
by on Wednesday, April 17, 2013

sale-sign1J.C. Penney recently gave up on last year’s strategy to abandon sales and coupons in favor of “everyday low pricing.” As an article in the New York Times points out, “simplifying pricing, it turns out, is not that simple”:

“It may be a decent deal to buy that item for $5,” said Ms. Fobes, who runs Penny Pinchin’ Mom, a blog about couponing strategies. “But for someone like me, who’s always looking for a sale or a coupon — seeing that something is marked down 20 percent off, then being able to hand over the coupon to save, it just entices me,” she said. “It’s a rush.”

Devoted coupon users like Ms. Fobes may be more frugal than the typical consumer. But most shoppers, coupon collectors or not, want the thrill of getting a great deal, even if it’s an illusion.

The article goes on to indicate  that this type of illusion-seeking and the corresponding “rush” are sometimes due to certain levels of conditioning:

Even Walmart, which actually does pull off the trick of “everyday low prices” in its domestic stores, is finding it hard to convert consumers to a single-price model in countries like Brazil and China, where retailers give deep discounts on a few main products, then mark up the rest, said Mark Wiltamuth, an analyst at Morgan Stanley.

The problem, economists and marketing experts say, is that consumers are conditioned to wait for deals and sales, partly because they do not have a good sense of how much an item should be worth to them and need cues to figure that out.

Just having a generically fair or low price, as Penney did, said Alexander Chernev, a marketing professor at the Kellogg School of Management at Northwestern University, assumes that consumers have some context for how much items should cost. But they don’t.

Yet as AEI’s Mark Perry notes, from a producer and seller’s perspective, such schemes come in response to the ever-evolving and unpredictable demands of the consumer—in this case, particular shopping preferences. This is “not an enviable position to be in,” Perry writes, “to be at the mercy of fickle and unpredictable consumers.”

But it doesn’t stop with the Black Friday line-dweller. This consumeristic longing for what Ms. Fobes describes as a “rush,” reaches into areas well beyond coupon-cutting and bargain-busting. Consumers of “fair trade” products, for example, often demonstrate a similar but distinct variation of this, though in these cases, yielding openly to higher prices. Many do, of course, take the time to investigate such matters, but your average fair trade consumer is much more likely to grab a bag of coffee off the shelf for some kind of intangible kick (the “rush”) than he is to actually learn the ins and outs of where the mark-up goes to.

When analyzing a web as intricate and complex as this, the situations will certainly vary. Yet as Ms. Fobes indicates, some of us are wholly conscious, nay, accepting of the temptation. Although we’re not likely to foresee all of the game-playing that occurs behind each and every price tag, we can at least be mindful of the inputs we’re bringing to the table when we choose a particular pricing strategy over another.

Prices transmit information, and we live in an information age. With wealth and prosperity can come a carelessness and hedonism that treats consumerism as a game or hobby. But from a broader perspective of Christian stewardship, not to mention a concern for basic efficiency, we do ourselves and our neighbors no favors by willfully seeking the “rush” to the neglect of a more healthy equilibrium.

Read the full New York Times article here.

Read more of Mark Perry’s analysis here.


  • RogerMcKinney

    A little understanding of microeconomics would help all concerned. Most stores charge different prices for different customers because the price elasticity of demand changes with different customer groups. So when a new product arrives, the store usually starts with a 50% markup of the wholesale price. Customers who are not price sensitive will buy it immediately. Once sales taper off, the store uses coupons and sales to attract the more price sensitive customers.

    By going to the one price strategy, Penney’s failed to capture the surplus it needs from the less price sensitive customers while not reducing prices enough to attract the price sensitive ones.

    In addition, Penney’s abandoned its traditional customers and tried to attract a more trendy, less price sensitive customer. It was a failed strategy all around. But any Penney’s customer could have told them it wouldn’t work.