Retail discounts…often just a modern day shell game
I was in Bed Bath & Beyond recently and the prices seemed high. I paused and thought about their generous return policy, the expense of the store space, and the normally helpful staff. I reminded myself that those things have meaningful costs. But when I got to the cash register I remembered the real reason for those prices:
You can use up to six of these at a time, they don’t expire, and they seem to self-reproduce in my mailbox every other day. I asked the cashier how many people make a purchase without getting a discount and he said “Hardly anyone.” He pulled out a 5 inch stack of used coupons and said, “I’ve only been here three hours…look at this.”
It’s easy to see how the store got backed into this corner. A bright marketing manager tried this coupon once. It was distinctive in the competitive landscape. It had amazing conversion. The sales looked great. The average basket price went up. Customers liked it. So the store tried it again. Customers were even more enthusiastic. The numbers were through the roof, so they did it again and again until the program became a drug and customers would no longer purchase anything without a discount. Margins started to get creamed. The core business was threatened. The only thing to do was either cheapen the merchandise with cost-reduced and stripped-down product exclusives from large manufacturers or quietly elevate sticker prices. So Bed Bath & Beyond did that. So did the competition. So would anyone.
When I got home from that little retail foray I read an article, Bargain Hunters, Hold That Click, in the New York Times about the fake discounts presented at many flash sale and discount sites. The article said,
Those who keep an eye on sales say there are more businesses proffering discount clothing than ever before, which means that no one channel is always tops for bargains. “It’s really hard to get good closeouts nowadays because so many places are fighting for them,” said Hayley Corwick, who writes the designer sales tracking blog Madison Avenue Spy. “Now the Web sites are fighting the discounters, who are fighting the flash sale sites.“
At Grommet we see the flash sale sites often picking up on products we discovered and promoting them at a “discount price” which is really exactly the same price we sell the product for every day. Here is an example from today from Fab.com These fantastic Rickshaw bags have been offered at this price for over a year at Daily Grommet, but Fab.com presents an inflated MSRP to calculate a discount:
From a purely rational standpoint, I’d expect the thin cover on all these “discounts” to have already been blown. Yet there is some odd psychology about people wanting a discount so badly they will throw out common sense and think they are getting something for less than is really possible. Everyone is time-starved. A discount can be a substitute for real price research. And especially on an impulse purchase, a discount is just plain reassuring. For evidence, look no further than the top tourist attraction in the US: outlet malls! (And the pathetic aspect of that is a post for another day.) These retailers have promoted fake discounts for years. But tourists are not demanding. We are just looking for a fun activity on a rainy day.
But as everyday consumers, we are a bit more discerning. Discounting is so rampant it is getting really hard to trust any pricing, full or discounted. Filene’s Basement announced its closing yesterday. Its legendary (and originally quite real) discount positioning has been grabbed by every store on the block. The discount environment is becoming a blood bath where only the huge, like TJX, will survive.
However, the online environment, with its ease of comparison shopping research and competitive transparency, will do a better job for consumers than the outlet malls and other bricks and mortar discounters and let people really see the truth. Or at least I hope so. But you can never overrate simple psychology. And discounts are as simple as it gets.
Jules Pieri 
2 Responses to “Retail discounts…often just a modern day shell game”
Hi there. Jason Goldberg, CEO of Fab.com here.
You should really consider removing Fab.com from this post.
The first image you show from our Fab.com sale is a coupon for a custom Rickshaw bag. We sold this coupon for $67, it is $90 on Rickshaw’s site.
http://www.rickshawbags.com/
Image 2 is houndstooth, it is exclusive to rickshaw, and made available special for Fab.com.
The third retails for $70 on rickshaw’s site.
Hi Jason,
I am happy to leave your comment here as you enrich the conversation. I’d rather do that than squelch the debate.
It is illuminating because you reference the MSRP, which we find tends to be quite elevated for many products. We often disregard it in setting pricing, and use search tools to decide what is the actual price most people will find when they consider a purchase. Then we generally meet it, unless the manufacturer is unhappy with someone dumping their product at an unsustainable price.
I will leave it to readers to decide if MSRP is the right benchmark for a discount.
It’s a different way of thinking. Discounts are powerful. But they worry me a lot for the reasons I outlined. I sometimes feel like the Lorax crying “support the little guy.”