Holiday Shopping Alert!
The world of retail pricing or in fact any pricing strategy is to pull the wool over the buyers eyes and make you shell out your hard earned cash on stuff you don’t need. Bold statement but how close to the truth is it?
There are MRP (Manufacturers Recommended Prices) RRP (Recommended Retail Prices) but very few if any goods or services are sold at MRP or RRP. This article is going to focus on stuff rather than services because services are a bigger minefield than stuff. I will attempt to show you how you are overspending and what tricks retailers use to get you to part with your cash.
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People have been bombarded over the years with adverts and campaigns which get you to believe that something with a “Discount” is worth spending your money on and is a bargain. Why? Because it was £100 and now it’s only £25.
Only snag is the price is actually £25 as the RRP was £100 and no-one sells stuff at RRP anymore, Amazon has seen to that! Also most RRP is just made up and has no basis on the cost of making the item whatsoever. The retailer is selling you the item based on you saving £75 and that’s a lot of money to save. However your not saving anything if you buy the item because you’ll be spending £25.
This tactic is so wide spread some companies have perpetual sales based on a fake RRP. Take sofas, have you ever seen a sofa on sale at full price? No! This is because the furniture market has for as long as anyone remembered discounted their goods. All companies then discount furniture because other furniture retailers offer a discount. It’s a vicious circle and one which has spread to other retailers and the buyer just ends up with a choice of discounted goods which have never been full price.
There are laws in place to stop retailers making up prices but it is so full of loopholes it may as well not exist. A company has to display goods at the higher price for no less than 28 days prior to discounting the goods and advertising them as discounted. (Not Verbatim). In effect companies will have a store in the middle of nowhere selling goods at the higher price so all the other stores can then claim they are discounting the products they sell. I even know of one retailer who’s RRP shop has no customers it’s so remote. I won’t name them to avoid pending lawsuit.
So you will have to reprogramme your brain when it comes to shopping. Ignore the “Discount”, which means the price the item is being offered at is the price you’ll be spending “Not Saving” (no such thing as “Saving” when you part with money). You then have to decide based on the actual price if the item is needed, wanted and affordable to you. Ask yourself “Can I Do Without This Item” if the answer is yes then don’t buy it.
Goods are also displayed in such a way to make us think they are good value for money. Take a simple restaurant menu. On the menu somewhere at the top of each section will be an expensive item which in turn makes all the other items on the menu seem better value for money. In fact the restaurant doesn’t want you to buy the most expensive item and sometimes won’t even have the ingredients available.
Here is a real life example.
A popular retailer wanted to sell a slow cooker for £49.99 they gave this new item a display all of its own on the end of an aisle. The slow cooker display could be seen by everyone entering the store so surely they should sell loads. The slow cooker was on display for a month however the store didn’t sell any. They decided to move the slow cooker and display it in their cooking section but this time placed another slow cooker next to it which was priced at £129.99. As you probably have guessed by now the slow cooker at £49.99 started flying of the shelves. This is because it looked better value than the one at £129.99.
Merchandising & Planograms
The majority of retail stores use merchandising techniques and once they have found what works best. They produce a planogram, a diagram of where to place items on display to maximise sales and profit. Companies have spent thousands of pounds developing techniques to get you to spend your money. One technique is to place high profit items at eye level then the next profitable just above eye level and the products they make the least profit on, are usually near the floor. Take a look when you are next in the supermarket and start discovering cheaper products.
Walk around any store and you’ll notice “Hot Spots” these are usually the end of an aisle but will consist of a bulk display selling an item or related items at a discount. These items have been purchased in bulk at a vastly reduced cost price and some of the savings will be passed on to you. However most of these items are not required, are a novelty and you can usually find a cheaper alternative elsewhere in the store. A lot of items on a hot spot are supplied on a sale or return basis from the manufacturer or wholesaler and doesn’t cost the store anything. Some stores charge the manufacturer to have a hot spot so make money even if they don’t sell anything.
A lot of manufacturers offer rebates when a company spends a certain amount and deals you see in store are a way they can achieve their rebate target. In the automotive crash repair industry rebates are a huge part of the business model. A supplier would sell car paint to a body shop for hundreds if not thousands of pounds. The body shop would claim off the car owners insurance company and then the supplier would rebate up to 50% of the initial price.
Bigger is not Always Better.
Most people assume that a large size is cheaper than buying multiple small sizes but it’s not always the case. Always check, because a lot of times it is cheaper to buy 2 x 250ml rather than 1 x 500ml. This is because consumers have been programmed over the years to believe this to be the case but more often than not it isn’t.
Some retailers are better at doing this than others but it’s a “Thing” in the retail world. Music is used to disorient shoppers and has been proven to interfere with the ability to think logically. As we know most purchases are based purely on emotion rather than logic. Adding music to the mix increases spending, either through inducing a better mood or just confusing the senses.
They made the profit when they bought the goods!
Buyers in retail companies have a major impact on the profit a company makes. After researching the market and learning the optimum price to sell an item, a buyers job is then to find a better wholesale price. This can increases the profit margin dramatically. Companies will also have copies made of popular branded products and sell them at a higher profit margin. Obviously under a different brand but sometimes the item will come from the same factory in China.
Spend And Get Offers.
Everything from Buy One Get One Free to being offered a product at half price because you have made a purchase. These items are sometimes situated near a till point and are always high profit items. Why on earth would a business give money away? An item which was £10 is now £5 And you get it for £2.50 because you’ve bought something else, would be £2.50 to everyone normally. Don’t fall for these impulse purchases which seem like a bargain at first but rarely are.
Buy one get one half price sounds better than 25% off
Buy 2 get one free is actually 33% off
Increasing prices before a sale!
I bet without looking you couldn’t tell me the price of anything in any retail store, unless you work there! The reason is that we are so used to prices changing we no longer keep track of them. Companies use this to their advantage by increasing the price of items before they reduce them in a sale. Whilst researching this article I discovered an item (which I fancy buying) go from £49 to £70 then it was reduced to £63 and will be further reduced soon to £49, all within the space of 6 weeks. The actual price for the item is £49 without any vouchers or rebates, to get the item cheaper you would need to use a cashback website or a cash back credit card. I managed to buy the item for £34.30 just by negotiating with the store manager. By the way all these prices were in the same store!
Why Amazon is Bad!
We all use Amazon, even I use Amazon but long term it’s not a good idea. Here’s Why
I’m not going to explain in detail how Amazon works but I will touch on a few areas where Amazon is killing the high street and eventually will charge you more for an item than you could have otherwise bought it for. In Fact if you have ever bought an item off Amazon and then selected any suggested item, you have already been over charged.
This is a huge subject but online retailers use hundreds of techniques to get you to purchase items. They offer a money back guarantee if you are not completely satisfied, however with online retailers it’s the law to offer you a 15 day no cost returns policy. However the online companies know that very few people can be bothered to return items. There is a price range in which products don’t get returned because it’s just not worth the hassle. That price is determined by the purchaser based on their income and status. If you are on a low income and every penny counts then you’ll return an item as the cash is important but if you earn a high income returning an item just isn’t worth it.
A great technique to receive a discount on online purchases is to place an item you wish to buy in the basket but do not finalise the purchase. You’ll more than likely receive an email with a discount code to encourage you to complete the transaction.
I will write a more comprehensive post on the online retail world soon.
If you really need or want an item then it is always worth asking for a better price. Lots of companies will offer “Flash Sales” online so there’s no reason they can’t reduce an item at any time. I’m aware of a company that offers 10%, 15% & 20% with an occasional 30% off just for asking. If an employee states they are unable to offer a discount ask for someone who can. Usually the employee is part time or an assistant who isn’t authorised to offer a discount, if you go high enough you’ll get something off. Also be prepared to walk away, as there are many shops which sell the same things. When I worked overseas 2 steps towards the door was always worth a % discount.
Retail is a minefield of psychology techniques to get you to part with your money. In today’s busy world companies charge you more because you’re in a rush, stressed or didn’t have time to do any research. Buyer beware!