Holiday Price Discounts Reveal Shopping Psychology

16 12 2008

With so many retailers ostensibly competing on price during the holiday season of 2008, it’s hard to avoid seeing the 20%, 40%, even 70% off discount signs and commercials designed to bring your holiday spending to some store’s cash register.  But some retailers are being awfully creative in their price promotions to capture a pair of psychological effects: the buyer’s pride in finding a great bargain and the desire to give a high quality gift.

Advertising bargain discounts, not prices, should drive holiday sales

Advertising bargain discounts, not prices, should drive holiday sales

Most people aren’t hoping to give worse presents to their loved ones this year – they want to give the same high quality, aspirational items they’d give in a good economy.  Shoppers accustomed to shopping at mid-range and high-end retailers may not know the location of the nearest Marshall’s, Filene’s Basement, HomeGoods, Sierra Trading Post, or other quality discount retailer.  Here are some examples of premier retailers using holiday discounts to attract holiday spending.

Some retailers use discounting as a regular part of their pricing strategy.  Jos. A. Bank is notorious for strategic pricing; you can’t find any of their private label merchandise at “Regular” prices EVER.  The menswear retailer consistently runs short-term “sales” to incite sales traffic that fears missing a great deal; these sales always reference the “Regular” price of an item even though that price is never offered.  This allows them to show, for example, a wool suit on sale for $199 against a “Regular” price of $550, apparently offering a 64% discount.  What isn’t shown is the historic pricing of the garment, which typically fluctuates between $299 and $349.  The suit is still strongly discounted (33-43% depending on the average sales price used), but the store gives shoppers the psychological benefit of saving “over 60%” if they buy today.

Macy’s holiday pricing offers another glimpse into a retailer’s strategic use (or misuse?) of pricing.  Most area newspapers carry Macy’s 10-15% “shopping pass” coupons every week, which may be limited to morning shopping hours, this-weekend-only, or other time constraint designed to draw shoppers in to spend quickly.  The constant availability of discount coupons is akin to Bed Bath & Beyond, which mails 20% off single item coupons every week.

While this constant couponing effectively lowers the everyday pricing of goods in store, these retailers can claim discounts off of regularly posted prices.  So when Macy’s runs a 20% off sale as they did in the first December 2008 weekend, the effective discount may only be an additional 5%.

The retailing secret here is that shoppers aren’t likely to comparison shop their holiday gifts for weeks on end as they would when buying a new car, for example.  This means consumers will generally be less educated about regular everyday pricing on most goods and their desire for a bargain – never stronger than in an economic downturn – may drive their purchasing behavior.  Thus a sign advertising “60% Off!” will draw retail traffic better than something that reads “20% off last week’s price!” even though both may carry the same price tag.

Retailers that cling to their MSRP, listing price, “Regular” price, or other anchoring price point will have  greater ability to emphasize the magnitude of their discounts this holiday season than shops like Pottery Barn, which post only the purchase price for regularly priced items and discount infrequently.  This pricing tactic bolsters the luxury appeal of an item by discouraging comparison shopping and limiting the availability of discounts.

However, when pricing becomes the key driver of sales as in this year’s holiday market environment, these stores can find themselves bound by their own pricing strategies.  Abercrombie & Fitch, for example, recently made headlines for its decision not to discount in early December – a pricing decision designed to retain the luxury appeal of its brand but which seems to have backfired as even luxury goods have taken it on the chin this holiday season.

These premier retailers are all striving to prevent sales traffic from walking out their doors or off their websites and into the warehouse discounters like Costco and Wal-Mart.  While sales numbers seem to be depressed this year (but perhaps above expectations), branded retailers are finding success by pairing their brand name to a high discount advertisement.

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