I still follow old school retail standards: Prices ending in. I will agree that once you break a price point you take the risk of the customer not buying the item. As I said, I love this topic — lots of different ways to slice the bread.
Okay, here is a story my friend and fellow analyst now retired told me. It started as a shrink prevention measure. Does it work? In my mind, I always just round up. The item is 99 cents? And the 97 cent ending that Georganne mentioned was used by some chains so that sales associates could quickly identify markdowns, not shoppers.
Does it juice some people? Who knew? Georganne, great perspective based on your over 30 years of ground level retail experience. Right on! Williams Sonoma only had two models, and the lower-priced one sold better. Williams Sonoma introduced a top tier option, and then the sales of the now mid-tier model took off exponentially because it looked like a better value. Not the best designed study in the world. College students, brewed coffee, and not answering whether they buy or not, just which size.
Stay with charm pricing. If the test results are limited to sales of cups of coffee, was the study comprehensive enough to draw any conclusions one way or the other? Various researches indicate that customers are swayed more by the most significant first digits of a price tag and sometimes by the last digit.
In one research done in , they found that 90 per cent of the prices end with either nine or five. However, as customers are subconsciously getting used to these odd prices, other companies, such as Walmart, favour more pricing ending with.
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And that's why JC Penney was ailing. The store would drop prices by about 40 per cent and offer those low prices everyday in round figures. They would also eliminate coupons, and only have 12 sales a year instead of It was a radical change of direction, not just for —year old JC Penney, but for any major discount retailer.
The commercial ended with the words, "No games, just great prices. That's fair and square. JC Penney. While there were many reasons why Johnson's new plan didn't succeed, it did reveal some truisms about retail pricing.
By removing the context for low prices, shoppers didn't know how to evaluate the new price tags. Put another way, by removing the original price and not showing the markdown price, shoppers couldn't determine whether the "everyday low price" was a good value. As Time Magazine noted, it also showed how irrational shoppers can be. Within one year under Johnson's new plan, JC Penney sales fell 28 per cent.
Revenues even dropped 40 per cent during the critically important Christmas shopping season. The same tactic translates to retail stores. When items are marked, say, "20" without the dollar sign, retailers are hoping customers won't associate the amount with money and thus be less likely to keep a running tally of how much they're spending as they shop.
But here's something stores don't advertise: You don't always have to buy in bulk to get the deal. It's something worth asking your retailer about before loading up your cart. When stores add limits to products, like "limit 4 per customer," it tricks shoppers into thinking the product is scarce, the price low, or both. It also gives the impression of big demand. You find yourself buying several when you would normally buy just one, to avoid missing out. Retailers know "free" is the magic word.
So they roll out deals like buy-one-get-one-free -- sometimes persuading us to buy things we wouldn't normally purchase.
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