Meaningless “list prices”
by Greg Krehbiel on 18 March 2013
It’s a very common practice in retail to have an expensive “regular retail price” that few people pay because the product is often on sale for far less.
I just read that was a consequence of Nixon-era price controls. Retailers didn’t want to be caught with their prices too low, so the “regular” price was set artificially high. This introduced inefficiencies in retailers’ operational models.
Walmart’s “everyday low prices” are an effective response to this because it gets rid of some of the operational distortions.
Obviously there were a lot of factors that made Walmart successful, but perhaps one of them was Nixon’s price controls.
-- 2013-03-18 » Greg Krehbiel
18 March 2013 @ 3:37 pm
That may be some of it. How many things did the Nixon-era controls cover?
Some of it, though, is probably a marketing trick. Kohl’s is a prime example of this. You have to be nuts to pay their “full price” for anything since everything goes on sale at some point over the course of a few weeks, plus charge card holders get frequent additional discounts. But by setting a ridiculously high “our price” for their clothing and housewares and putting it on the tag, people think they’re getting a great bargain when they’re just paying a reasonable price — plus they get to make a killing when the “more money than brains” types come in and pay full price because they can’t be bothered to wait a week.
And then on top of that, a lot of items have the “suggested retail” price on the tag that is even more inflated, that they don’t even pretend to try to charge you. So people think that by shopping at Kohl’s, they get to buy the stuff that Really Rich People in the Big City buy, which is good for business.
18 March 2013 @ 3:51 pm
I’ve always thought that the main advantage of places like Walmart and Target was that they hit the sweet spot in terms of price, quality, and availability.
Sure, you can get a better and cheaper X at store S, or Y at store T; but you’re unlikely to do enormously better on staples at any one place. The people who recommend shopping at multiple specialty stores have to have the time — and the gas money! — to spend an afternoon hunting them. If customers have reason to believe they’re getting close enough to the best they can get pricewise at tolerable quality, then the convenience of one-stop shopping wins out.
Or at least that’s always been how I’ve acted when travel was a major nuisance, and I don’t think I’m that unusual.
18 March 2013 @ 3:58 pm
@Pentamom, marketers definitely use “list price” vs. “sale price” for other reasons.
Kohl’s is bad, as you say, but Jos. A Banks is ridiculous. They have sales where you buy one suit and get 3 for free, so you’re just a dope to buy a suit when it’s not on sale.
But the point of the stuff I was reading was that you can mess up your business model if those price disparities haven’t been integrated into your whole supply and distribution chain.
So Nixon comes along and says “the price must be X,” and then a manager thinks he’s so smart by inventing a ‘regular price’ that’s 3X against which he discounts. But it isn’t that simple, and creates inefficiencies.
You can’t just tinker with one thing and expect everything else to stay the same.
18 March 2013 @ 4:02 pm
@DSM, yes, one advantage of Walmart is everything’s in one store. As I experienced recently, where else can you buy apples, contact lens solution, fishing equipment and mulch?
But they also have “everyday low prices,” and every Walmart manager is authorized to lower his price on any item if local competitors are underselling him.
18 March 2013 @ 5:52 pm
Another thing you can blame Nixon’s price controls for is those damned rebates. Manufacturers who could produce at a lower price (especially autos) wouldn’t reduce their list price, for fear of the price being frozen at the low level they might not be able to meet later. Instead thay would keep the old list price, but pay a rebate. They could withdraw the rebate offer any time.
On Walmart and just what they offer at their reduced prices, a friend of mine says she bought some small appliance (a toaster or something) at Walmart. It was defective, so she called GE (the nominal manufacturer) for warranty service.
She was asked for the serial number, then told that she had bought a Walmart model, and that they did not honor the warranty on those.
So what you think is the same thing for less might be that “Bulova” watch that really says “Bolivia.”
18 March 2013 @ 6:09 pm
Yes, I’ve heard that sometimes there is a “walmart version” of an item, but that’s not always the case.