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Deck 20: Setting the Right Price
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Setting the right price is one of the most challenging aspects of a marketer's job. How high a price will the market bear? What kind of message does the price communicate? How flexible can our price be? The answer to those and a multitude of other questions relating to price vary by industry, by product categories within an industry, and even by brand and store.
This video shows you a wide range of pricing issues and concerns facing new brands, like method, ReadyMade Magazine, and Acid+All, and established brands, like Sephora and Vans. There are both similarities and differences in the tools each company uses to set and fine-tune its base price. One idea, however, unifies all of the companies: pricing is a considered strategy, not an afterthought.
In what ways is the pricing strategy of Sephora similar to that of Acid+ All?
This video shows you a wide range of pricing issues and concerns facing new brands, like method, ReadyMade Magazine, and Acid+All, and established brands, like Sephora and Vans. There are both similarities and differences in the tools each company uses to set and fine-tune its base price. One idea, however, unifies all of the companies: pricing is a considered strategy, not an afterthought.
In what ways is the pricing strategy of Sephora similar to that of Acid+ All?
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According to tradition, Black Friday-the day after Thanksgiving-is named as such because that's the day when retailers are said to become profitable for the year, or their sales move into "the black." Whether true or not, it does underscore how important that day, and the holiday shopping season in general, is to retailers. Holiday sales are estimated to make up as much as 40 percent of retailers' annual revenues and 50 percent of their annual profits. It should be no surprise then that retailers will pull out every trick in the book to get shoppers out and buying during the holiday season.
![According to tradition, Black Friday-the day after Thanksgiving-is named as such because that's the day when retailers are said to become profitable for the year, or their sales move into the black. Whether true or not, it does underscore how important that day, and the holiday shopping season in general, is to retailers. Holiday sales are estimated to make up as much as 40 percent of retailers' annual revenues and 50 percent of their annual profits. It should be no surprise then that retailers will pull out every trick in the book to get shoppers out and buying during the holiday season. Retailers often must walk a fine line, however, in how they present their offers. Retailers often order their holiday inventories in the spring, and they must be careful to match sales with inventory levels so as to encourage customers to make more purchases but not in a way that destroys profitability. Increasingly, the pricing strategy is no longer just about Black Friday. Timing then plays a major role in how Black Friday and holiday pricing strategies are executed, with many Black Friday pricing strategies designed to create a sense of urgency among shoppers. Door-buster sales and limited-time offers force consumers to make purchasing decisions faster, making it more difficult for them to comparison shop. For example, Gap Inc.'s Banana Republic offered 40 percent off certain sweaters between 11 a.m. and 2 p.m. These sorts of deals create a sense of exclusivity for shoppers. Driven by that sense of urgency, shoppers often aren't as quick to consider exactly what kind of deal they are getting. Dan Ariely, professor of psychology and behavioral economics at Duke University, has done experiments testing buyer behavior. In one experiment, when offered a free $10 gift card or a $20 gift card for $7, most respondents chose the free one, though it was the less profitable alternative. When the $10 gift card was offered for $1, however, most respondent chose the more profitable $20 gift card. Ariely also has observed that shoppers may react differently to an item based on what they have to compare it to. A retailer will probably be able to sell more $50 jackets if it sets them next to several $100 jackets than if the $50 jackets are the highest priced item on the rack. Retailers take many cues from the psychological behavior patterns of consumers when setting prices. Macy's created a percentage-off promotion, taking an extra 20 percent off an item which was already marked down 30 percent. Customers might initially conclude they are getting 50 percent off; however, taking 20 percent off an item already marked down 30 percent would create a total reduction of 44 percent. Retailers might also make slight changes to their sales that might not be immediately obvious. On Black Friday, Gap offered 50 percent off everything in its stores until 10 a.m., then offered fl at price deals on children's clothing the next day. So on Black Friday, a $29.50 girl's tulle skirt cost $14.75, but the next day it was sold at the fl at price of $15-a 25 cent increase from the previous day. Even with the more basic pricing decisions, retailers must still make strategic decisions about which pricing strategy will work best to drive sales. In past years, Gap's Old Navy division had promoted $29.50 jeans at 50 percent off. This year, Gap changed its strategy to charge a fl at $15. In this case, the reason was not an issue of increasing margins, but one of visibility. As Old Navy president Tom Wyatt says, The customer can see [the price] from 20 to 30 feet away, and knows exactly what he will be paying. Instead of using a normal 20 percent discount, JCPenney offered JCP cash coupons at $10 off $50 in purchases, $15 off $75 in purchases, and $20 off $100 in purchases. With many other items marked down already, a customer might have to significantly increase her number of purchases in order to qualify for those discounts. Many retailers have begun expanding their strategies beyond just Black Friday and the stores themselves. Many customers begin researching Black Friday deals the day before, and retailers such as Walmart are trying to turn those browsers into buyers, promoting Black Friday in-store deals on their Web site and offering Web exclusive deals on Black Friday and Thanksgiving Day itself. Walmart offered online discounts on nearly three times as many items as in the previous year. Retailers must be careful offering online deals, however. Customer who sat in line for hours for an in-store deal might not be too pleased to discover they could have gotten the exact same thing online. For all their efforts, retailers seem to be making some headway. After two years of poor holiday sales, an estimated 212 million shoppers (up from 195 million the year before) spent $365 per person on average over the 2010 Thanksgiving weekend, up 6 percent from 2009. Online sales totals for Thanksgiving Day were $407 million, up from $318 million the year before, and $648 million on Black Friday, up from $595 million. Strong sales on Black Friday, however, are no guarantee of a successful holiday sales season. Retailers still must be strategic in managing their sales and pricing strategies throughout the season. As Mark Snyder, chief marketing officer for Sears Holdings Corp.'s Kmart operations, puts it, The holidays are a marathon and not a sprint. During the 2008 holiday season as it was becoming evident that the U.S. was entering a severe recession, many retailers found themselves with way too much inventory as consumers were sharply cutting back on spending. When holiday sales came in well below expected levels, retailers were forced to drastically slash prices to get rid of excess inventory. How would you handle a situation like that and what pricing strategies would you use to encourage customers to come out, while trying to avoid cutting too much into profits?<div style=padding-top: 35px>](https://d2lvgg3v3hfg70.cloudfront.net/SM2964/11eba024_b6f4_917c_8829_13282fe97c69_SM2964_00.jpg)
Retailers often must walk a fine line, however, in how they present their offers. Retailers often order their holiday inventories in the spring, and they must be careful to match sales with inventory levels so as to encourage customers to make more purchases but not in a way that destroys profitability. Increasingly, the pricing strategy is no longer just about Black Friday.
Timing then plays a major role in how Black Friday and holiday pricing strategies are executed, with many Black Friday pricing strategies designed to create a sense of urgency among shoppers. "Door-buster" sales and "limited-time offers" force consumers to make purchasing decisions faster, making it more difficult for them to comparison shop. For example, Gap Inc.'s Banana Republic offered 40 percent off certain sweaters between 11 a.m. and 2 p.m. These sorts of deals create a sense of exclusivity for shoppers.
Driven by that sense of urgency, shoppers often aren't as quick to consider exactly what kind of deal they are getting. Dan Ariely, professor of psychology and behavioral economics at Duke University, has done experiments testing buyer behavior. In one experiment, when offered a free $10 gift card or a $20 gift card for $7, most respondents chose the free one, though it was the less profitable alternative. When the $10 gift card was offered for $1, however, most respondent chose the more profitable $20 gift card. Ariely also has observed that shoppers may react differently to an item based on what they have to compare it to. A retailer will probably be able to sell more $50 jackets if it sets them next to several $100 jackets than if the $50 jackets are the highest priced item on the rack.
Retailers take many cues from the psychological behavior patterns of consumers when setting prices. Macy's created a percentage-off promotion, taking an extra 20 percent off an item which was already marked down 30 percent. Customers might initially conclude they are getting 50 percent off; however, taking 20 percent off an item already marked down 30 percent would create a total reduction of 44 percent. Retailers might also make slight changes to their sales that might not be immediately obvious. On Black Friday, Gap offered 50 percent off everything in its stores until 10 a.m., then offered fl at price deals on children's clothing the next day. So on Black Friday, a $29.50 girl's tulle skirt cost $14.75, but the next day it was sold at the fl at price of $15-a 25 cent increase from the previous day.
Even with the more basic pricing decisions, retailers must still make strategic decisions about which pricing strategy will work best to drive sales. In past years, Gap's Old Navy division had promoted $29.50 jeans at 50 percent off. This year, Gap changed its strategy to charge a fl at $15. In this case, the reason was not an issue of increasing margins, but one of visibility. As Old Navy president Tom Wyatt says, "The customer can see [the price] from 20 to 30 feet away," and knows exactly what he will be paying.
Instead of using a normal 20 percent discount, JCPenney offered "JCP cash" coupons at $10 off $50 in purchases, $15 off $75 in purchases, and $20 off $100 in purchases. With many other items marked down already, a customer might have to significantly increase her number of purchases in order to qualify for those discounts.
Many retailers have begun expanding their strategies beyond just Black Friday and the stores themselves. Many customers begin researching Black Friday deals the day before, and retailers such as Walmart are trying to turn those browsers into buyers, promoting Black Friday in-store deals on their Web site and offering Web exclusive deals on Black Friday and Thanksgiving Day itself. Walmart offered online discounts on nearly three times as many items as in the previous year. Retailers must be careful offering online deals, however. Customer who sat in line for hours for an in-store deal might not be too pleased to discover they could have gotten the exact same thing online.
For all their efforts, retailers seem to be making some headway. After two years of poor holiday sales, an estimated 212 million shoppers (up from 195 million the year before) spent $365 per person on average over the 2010 Thanksgiving weekend, up 6 percent from 2009. Online sales totals for Thanksgiving Day were $407 million, up from $318 million the year before, and $648 million on Black Friday, up from $595 million. Strong sales on Black Friday, however, are no guarantee of a successful holiday sales season. Retailers still must be strategic in managing their sales and pricing strategies throughout the season. As Mark Snyder, chief marketing officer for Sears Holdings Corp.'s Kmart operations, puts it, "The holidays are a marathon and not a sprint."
During the 2008 holiday season as it was becoming evident that the U.S. was entering a severe recession, many retailers found themselves with way too much inventory as consumers were sharply cutting back on spending. When holiday sales came in well below expected levels, retailers were forced to drastically slash prices to get rid of excess inventory. How would you handle a situation like that and what pricing strategies would you use to encourage customers to come out, while trying to avoid cutting too much into profits?
Retailers often must walk a fine line, however, in how they present their offers. Retailers often order their holiday inventories in the spring, and they must be careful to match sales with inventory levels so as to encourage customers to make more purchases but not in a way that destroys profitability. Increasingly, the pricing strategy is no longer just about Black Friday.
Timing then plays a major role in how Black Friday and holiday pricing strategies are executed, with many Black Friday pricing strategies designed to create a sense of urgency among shoppers. "Door-buster" sales and "limited-time offers" force consumers to make purchasing decisions faster, making it more difficult for them to comparison shop. For example, Gap Inc.'s Banana Republic offered 40 percent off certain sweaters between 11 a.m. and 2 p.m. These sorts of deals create a sense of exclusivity for shoppers.
Driven by that sense of urgency, shoppers often aren't as quick to consider exactly what kind of deal they are getting. Dan Ariely, professor of psychology and behavioral economics at Duke University, has done experiments testing buyer behavior. In one experiment, when offered a free $10 gift card or a $20 gift card for $7, most respondents chose the free one, though it was the less profitable alternative. When the $10 gift card was offered for $1, however, most respondent chose the more profitable $20 gift card. Ariely also has observed that shoppers may react differently to an item based on what they have to compare it to. A retailer will probably be able to sell more $50 jackets if it sets them next to several $100 jackets than if the $50 jackets are the highest priced item on the rack.
Retailers take many cues from the psychological behavior patterns of consumers when setting prices. Macy's created a percentage-off promotion, taking an extra 20 percent off an item which was already marked down 30 percent. Customers might initially conclude they are getting 50 percent off; however, taking 20 percent off an item already marked down 30 percent would create a total reduction of 44 percent. Retailers might also make slight changes to their sales that might not be immediately obvious. On Black Friday, Gap offered 50 percent off everything in its stores until 10 a.m., then offered fl at price deals on children's clothing the next day. So on Black Friday, a $29.50 girl's tulle skirt cost $14.75, but the next day it was sold at the fl at price of $15-a 25 cent increase from the previous day.
Even with the more basic pricing decisions, retailers must still make strategic decisions about which pricing strategy will work best to drive sales. In past years, Gap's Old Navy division had promoted $29.50 jeans at 50 percent off. This year, Gap changed its strategy to charge a fl at $15. In this case, the reason was not an issue of increasing margins, but one of visibility. As Old Navy president Tom Wyatt says, "The customer can see [the price] from 20 to 30 feet away," and knows exactly what he will be paying.
Instead of using a normal 20 percent discount, JCPenney offered "JCP cash" coupons at $10 off $50 in purchases, $15 off $75 in purchases, and $20 off $100 in purchases. With many other items marked down already, a customer might have to significantly increase her number of purchases in order to qualify for those discounts.
Many retailers have begun expanding their strategies beyond just Black Friday and the stores themselves. Many customers begin researching Black Friday deals the day before, and retailers such as Walmart are trying to turn those browsers into buyers, promoting Black Friday in-store deals on their Web site and offering Web exclusive deals on Black Friday and Thanksgiving Day itself. Walmart offered online discounts on nearly three times as many items as in the previous year. Retailers must be careful offering online deals, however. Customer who sat in line for hours for an in-store deal might not be too pleased to discover they could have gotten the exact same thing online.
For all their efforts, retailers seem to be making some headway. After two years of poor holiday sales, an estimated 212 million shoppers (up from 195 million the year before) spent $365 per person on average over the 2010 Thanksgiving weekend, up 6 percent from 2009. Online sales totals for Thanksgiving Day were $407 million, up from $318 million the year before, and $648 million on Black Friday, up from $595 million. Strong sales on Black Friday, however, are no guarantee of a successful holiday sales season. Retailers still must be strategic in managing their sales and pricing strategies throughout the season. As Mark Snyder, chief marketing officer for Sears Holdings Corp.'s Kmart operations, puts it, "The holidays are a marathon and not a sprint."
During the 2008 holiday season as it was becoming evident that the U.S. was entering a severe recession, many retailers found themselves with way too much inventory as consumers were sharply cutting back on spending. When holiday sales came in well below expected levels, retailers were forced to drastically slash prices to get rid of excess inventory. How would you handle a situation like that and what pricing strategies would you use to encourage customers to come out, while trying to avoid cutting too much into profits?
Question
Question
Setting the right price is one of the most challenging aspects of a marketer's job. How high a price will the market bear? What kind of message does the price communicate? How flexible can our price be? The answer to those and a multitude of other questions relating to price vary by industry, by product categories within an industry, and even by brand and store.
This video shows you a wide range of pricing issues and concerns facing new brands, like method, ReadyMade Magazine, and Acid+All, and established brands, like Sephora and Vans. There are both similarities and differences in the tools each company uses to set and fine-tune its base price. One idea, however, unifies all of the companies: pricing is a considered strategy, not an afterthought.
Does it make sense for method to use product line pricing? Why or why not?
This video shows you a wide range of pricing issues and concerns facing new brands, like method, ReadyMade Magazine, and Acid+All, and established brands, like Sephora and Vans. There are both similarities and differences in the tools each company uses to set and fine-tune its base price. One idea, however, unifies all of the companies: pricing is a considered strategy, not an afterthought.
Does it make sense for method to use product line pricing? Why or why not?
Question
Setting the right price is one of the most challenging aspects of a marketer's job. How high a price will the market bear? What kind of message does the price communicate? How flexible can our price be? The answer to those and a multitude of other questions relating to price vary by industry, by product categories within an industry, and even by brand and store.
This video shows you a wide range of pricing issues and concerns facing new brands, like method, ReadyMade Magazine, and Acid+All, and established brands, like Sephora and Vans. There are both similarities and differences in the tools each company uses to set and fine-tune its base price. One idea, however, unifies all of the companies: pricing is a considered strategy, not an afterthought.
What is Vans' primary strategy for setting prices on tickets to the Warped Tour it sponsors?
This video shows you a wide range of pricing issues and concerns facing new brands, like method, ReadyMade Magazine, and Acid+All, and established brands, like Sephora and Vans. There are both similarities and differences in the tools each company uses to set and fine-tune its base price. One idea, however, unifies all of the companies: pricing is a considered strategy, not an afterthought.
What is Vans' primary strategy for setting prices on tickets to the Warped Tour it sponsors?
Question
Question
Setting the right price is one of the most challenging aspects of a marketer's job. How high a price will the market bear? What kind of message does the price communicate? How flexible can our price be? The answer to those and a multitude of other questions relating to price vary by industry, by product categories within an industry, and even by brand and store.
This video shows you a wide range of pricing issues and concerns facing new brands, like method, ReadyMade Magazine, and Acid+All, and established brands, like Sephora and Vans. There are both similarities and differences in the tools each company uses to set and fine-tune its base price. One idea, however, unifies all of the companies: pricing is a considered strategy, not an afterthought.
Compare the pricing strategies of method, ReadyMade Magazine, and Acid+ All. Do all of these relatively new brands use the same strategy? Explain.
This video shows you a wide range of pricing issues and concerns facing new brands, like method, ReadyMade Magazine, and Acid+All, and established brands, like Sephora and Vans. There are both similarities and differences in the tools each company uses to set and fine-tune its base price. One idea, however, unifies all of the companies: pricing is a considered strategy, not an afterthought.
Compare the pricing strategies of method, ReadyMade Magazine, and Acid+ All. Do all of these relatively new brands use the same strategy? Explain.
Question
According to tradition, Black Friday-the day after Thanksgiving-is named as such because that's the day when retailers are said to become profitable for the year, or their sales move into "the black." Whether true or not, it does underscore how important that day, and the holiday shopping season in general, is to retailers. Holiday sales are estimated to make up as much as 40 percent of retailers' annual revenues and 50 percent of their annual profits. It should be no surprise then that retailers will pull out every trick in the book to get shoppers out and buying during the holiday season.
![According to tradition, Black Friday-the day after Thanksgiving-is named as such because that's the day when retailers are said to become profitable for the year, or their sales move into the black. Whether true or not, it does underscore how important that day, and the holiday shopping season in general, is to retailers. Holiday sales are estimated to make up as much as 40 percent of retailers' annual revenues and 50 percent of their annual profits. It should be no surprise then that retailers will pull out every trick in the book to get shoppers out and buying during the holiday season. Retailers often must walk a fine line, however, in how they present their offers. Retailers often order their holiday inventories in the spring, and they must be careful to match sales with inventory levels so as to encourage customers to make more purchases but not in a way that destroys profitability. Increasingly, the pricing strategy is no longer just about Black Friday. Timing then plays a major role in how Black Friday and holiday pricing strategies are executed, with many Black Friday pricing strategies designed to create a sense of urgency among shoppers. Door-buster sales and limited-time offers force consumers to make purchasing decisions faster, making it more difficult for them to comparison shop. For example, Gap Inc.'s Banana Republic offered 40 percent off certain sweaters between 11 a.m. and 2 p.m. These sorts of deals create a sense of exclusivity for shoppers. Driven by that sense of urgency, shoppers often aren't as quick to consider exactly what kind of deal they are getting. Dan Ariely, professor of psychology and behavioral economics at Duke University, has done experiments testing buyer behavior. In one experiment, when offered a free $10 gift card or a $20 gift card for $7, most respondents chose the free one, though it was the less profitable alternative. When the $10 gift card was offered for $1, however, most respondent chose the more profitable $20 gift card. Ariely also has observed that shoppers may react differently to an item based on what they have to compare it to. A retailer will probably be able to sell more $50 jackets if it sets them next to several $100 jackets than if the $50 jackets are the highest priced item on the rack. Retailers take many cues from the psychological behavior patterns of consumers when setting prices. Macy's created a percentage-off promotion, taking an extra 20 percent off an item which was already marked down 30 percent. Customers might initially conclude they are getting 50 percent off; however, taking 20 percent off an item already marked down 30 percent would create a total reduction of 44 percent. Retailers might also make slight changes to their sales that might not be immediately obvious. On Black Friday, Gap offered 50 percent off everything in its stores until 10 a.m., then offered fl at price deals on children's clothing the next day. So on Black Friday, a $29.50 girl's tulle skirt cost $14.75, but the next day it was sold at the fl at price of $15-a 25 cent increase from the previous day. Even with the more basic pricing decisions, retailers must still make strategic decisions about which pricing strategy will work best to drive sales. In past years, Gap's Old Navy division had promoted $29.50 jeans at 50 percent off. This year, Gap changed its strategy to charge a fl at $15. In this case, the reason was not an issue of increasing margins, but one of visibility. As Old Navy president Tom Wyatt says, The customer can see [the price] from 20 to 30 feet away, and knows exactly what he will be paying. Instead of using a normal 20 percent discount, JCPenney offered JCP cash coupons at $10 off $50 in purchases, $15 off $75 in purchases, and $20 off $100 in purchases. With many other items marked down already, a customer might have to significantly increase her number of purchases in order to qualify for those discounts. Many retailers have begun expanding their strategies beyond just Black Friday and the stores themselves. Many customers begin researching Black Friday deals the day before, and retailers such as Walmart are trying to turn those browsers into buyers, promoting Black Friday in-store deals on their Web site and offering Web exclusive deals on Black Friday and Thanksgiving Day itself. Walmart offered online discounts on nearly three times as many items as in the previous year. Retailers must be careful offering online deals, however. Customer who sat in line for hours for an in-store deal might not be too pleased to discover they could have gotten the exact same thing online. For all their efforts, retailers seem to be making some headway. After two years of poor holiday sales, an estimated 212 million shoppers (up from 195 million the year before) spent $365 per person on average over the 2010 Thanksgiving weekend, up 6 percent from 2009. Online sales totals for Thanksgiving Day were $407 million, up from $318 million the year before, and $648 million on Black Friday, up from $595 million. Strong sales on Black Friday, however, are no guarantee of a successful holiday sales season. Retailers still must be strategic in managing their sales and pricing strategies throughout the season. As Mark Snyder, chief marketing officer for Sears Holdings Corp.'s Kmart operations, puts it, The holidays are a marathon and not a sprint. Are the Black Friday deals discussed here examples of seasonal discounts? Why or why not?<div style=padding-top: 35px>](https://d2lvgg3v3hfg70.cloudfront.net/SM2964/11eba024_b6f1_5d2a_8829_8796e458e744_SM2964_00.jpg)
Retailers often must walk a fine line, however, in how they present their offers. Retailers often order their holiday inventories in the spring, and they must be careful to match sales with inventory levels so as to encourage customers to make more purchases but not in a way that destroys profitability. Increasingly, the pricing strategy is no longer just about Black Friday.
Timing then plays a major role in how Black Friday and holiday pricing strategies are executed, with many Black Friday pricing strategies designed to create a sense of urgency among shoppers. "Door-buster" sales and "limited-time offers" force consumers to make purchasing decisions faster, making it more difficult for them to comparison shop. For example, Gap Inc.'s Banana Republic offered 40 percent off certain sweaters between 11 a.m. and 2 p.m. These sorts of deals create a sense of exclusivity for shoppers.
Driven by that sense of urgency, shoppers often aren't as quick to consider exactly what kind of deal they are getting. Dan Ariely, professor of psychology and behavioral economics at Duke University, has done experiments testing buyer behavior. In one experiment, when offered a free $10 gift card or a $20 gift card for $7, most respondents chose the free one, though it was the less profitable alternative. When the $10 gift card was offered for $1, however, most respondent chose the more profitable $20 gift card. Ariely also has observed that shoppers may react differently to an item based on what they have to compare it to. A retailer will probably be able to sell more $50 jackets if it sets them next to several $100 jackets than if the $50 jackets are the highest priced item on the rack.
Retailers take many cues from the psychological behavior patterns of consumers when setting prices. Macy's created a percentage-off promotion, taking an extra 20 percent off an item which was already marked down 30 percent. Customers might initially conclude they are getting 50 percent off; however, taking 20 percent off an item already marked down 30 percent would create a total reduction of 44 percent. Retailers might also make slight changes to their sales that might not be immediately obvious. On Black Friday, Gap offered 50 percent off everything in its stores until 10 a.m., then offered fl at price deals on children's clothing the next day. So on Black Friday, a $29.50 girl's tulle skirt cost $14.75, but the next day it was sold at the fl at price of $15-a 25 cent increase from the previous day.
Even with the more basic pricing decisions, retailers must still make strategic decisions about which pricing strategy will work best to drive sales. In past years, Gap's Old Navy division had promoted $29.50 jeans at 50 percent off. This year, Gap changed its strategy to charge a fl at $15. In this case, the reason was not an issue of increasing margins, but one of visibility. As Old Navy president Tom Wyatt says, "The customer can see [the price] from 20 to 30 feet away," and knows exactly what he will be paying.
Instead of using a normal 20 percent discount, JCPenney offered "JCP cash" coupons at $10 off $50 in purchases, $15 off $75 in purchases, and $20 off $100 in purchases. With many other items marked down already, a customer might have to significantly increase her number of purchases in order to qualify for those discounts.
Many retailers have begun expanding their strategies beyond just Black Friday and the stores themselves. Many customers begin researching Black Friday deals the day before, and retailers such as Walmart are trying to turn those browsers into buyers, promoting Black Friday in-store deals on their Web site and offering Web exclusive deals on Black Friday and Thanksgiving Day itself. Walmart offered online discounts on nearly three times as many items as in the previous year. Retailers must be careful offering online deals, however. Customer who sat in line for hours for an in-store deal might not be too pleased to discover they could have gotten the exact same thing online.
For all their efforts, retailers seem to be making some headway. After two years of poor holiday sales, an estimated 212 million shoppers (up from 195 million the year before) spent $365 per person on average over the 2010 Thanksgiving weekend, up 6 percent from 2009. Online sales totals for Thanksgiving Day were $407 million, up from $318 million the year before, and $648 million on Black Friday, up from $595 million. Strong sales on Black Friday, however, are no guarantee of a successful holiday sales season. Retailers still must be strategic in managing their sales and pricing strategies throughout the season. As Mark Snyder, chief marketing officer for Sears Holdings Corp.'s Kmart operations, puts it, "The holidays are a marathon and not a sprint."
Are the Black Friday deals discussed here examples of seasonal discounts? Why or why not?
Retailers often must walk a fine line, however, in how they present their offers. Retailers often order their holiday inventories in the spring, and they must be careful to match sales with inventory levels so as to encourage customers to make more purchases but not in a way that destroys profitability. Increasingly, the pricing strategy is no longer just about Black Friday.
Timing then plays a major role in how Black Friday and holiday pricing strategies are executed, with many Black Friday pricing strategies designed to create a sense of urgency among shoppers. "Door-buster" sales and "limited-time offers" force consumers to make purchasing decisions faster, making it more difficult for them to comparison shop. For example, Gap Inc.'s Banana Republic offered 40 percent off certain sweaters between 11 a.m. and 2 p.m. These sorts of deals create a sense of exclusivity for shoppers.
Driven by that sense of urgency, shoppers often aren't as quick to consider exactly what kind of deal they are getting. Dan Ariely, professor of psychology and behavioral economics at Duke University, has done experiments testing buyer behavior. In one experiment, when offered a free $10 gift card or a $20 gift card for $7, most respondents chose the free one, though it was the less profitable alternative. When the $10 gift card was offered for $1, however, most respondent chose the more profitable $20 gift card. Ariely also has observed that shoppers may react differently to an item based on what they have to compare it to. A retailer will probably be able to sell more $50 jackets if it sets them next to several $100 jackets than if the $50 jackets are the highest priced item on the rack.
Retailers take many cues from the psychological behavior patterns of consumers when setting prices. Macy's created a percentage-off promotion, taking an extra 20 percent off an item which was already marked down 30 percent. Customers might initially conclude they are getting 50 percent off; however, taking 20 percent off an item already marked down 30 percent would create a total reduction of 44 percent. Retailers might also make slight changes to their sales that might not be immediately obvious. On Black Friday, Gap offered 50 percent off everything in its stores until 10 a.m., then offered fl at price deals on children's clothing the next day. So on Black Friday, a $29.50 girl's tulle skirt cost $14.75, but the next day it was sold at the fl at price of $15-a 25 cent increase from the previous day.
Even with the more basic pricing decisions, retailers must still make strategic decisions about which pricing strategy will work best to drive sales. In past years, Gap's Old Navy division had promoted $29.50 jeans at 50 percent off. This year, Gap changed its strategy to charge a fl at $15. In this case, the reason was not an issue of increasing margins, but one of visibility. As Old Navy president Tom Wyatt says, "The customer can see [the price] from 20 to 30 feet away," and knows exactly what he will be paying.
Instead of using a normal 20 percent discount, JCPenney offered "JCP cash" coupons at $10 off $50 in purchases, $15 off $75 in purchases, and $20 off $100 in purchases. With many other items marked down already, a customer might have to significantly increase her number of purchases in order to qualify for those discounts.
Many retailers have begun expanding their strategies beyond just Black Friday and the stores themselves. Many customers begin researching Black Friday deals the day before, and retailers such as Walmart are trying to turn those browsers into buyers, promoting Black Friday in-store deals on their Web site and offering Web exclusive deals on Black Friday and Thanksgiving Day itself. Walmart offered online discounts on nearly three times as many items as in the previous year. Retailers must be careful offering online deals, however. Customer who sat in line for hours for an in-store deal might not be too pleased to discover they could have gotten the exact same thing online.
For all their efforts, retailers seem to be making some headway. After two years of poor holiday sales, an estimated 212 million shoppers (up from 195 million the year before) spent $365 per person on average over the 2010 Thanksgiving weekend, up 6 percent from 2009. Online sales totals for Thanksgiving Day were $407 million, up from $318 million the year before, and $648 million on Black Friday, up from $595 million. Strong sales on Black Friday, however, are no guarantee of a successful holiday sales season. Retailers still must be strategic in managing their sales and pricing strategies throughout the season. As Mark Snyder, chief marketing officer for Sears Holdings Corp.'s Kmart operations, puts it, "The holidays are a marathon and not a sprint."
Are the Black Friday deals discussed here examples of seasonal discounts? Why or why not?
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Deck 20: Setting the Right Price
1
People feel better when they think they are getting a great bargain when they shop. Knowing this, some retailers mark up items above the traditional retail price and then offer a 60 percent discount. If they had simply discounted the normal retail price by 20 percent the resulting "sale price" would have been the same. One retailer says that he is just making shoppers happy that they got a great deal when he inflates the retail price before discounting.
What do you think?
What do you think?
By inflating the price and then offering a discount on the inflated price, the retailer is not actually offering his customers a true deal. Rather, the retailer is manipulating the prices in order to make profits at his customers' expense. Though this inflation of the prices may be a common practice, it may not be deemed a fair promotional scheme. This practice resembles a reverse price baiting strategy, in which the price is increased for the purposes of implementing a false reduction through a "discount" as a means of drawing customers into the store and persuading them to make purchases.
2
For continued general assistance on business plans and marketing plans, visit www.bplans.com or http://www.businessplans.org. You can also refer to Appendix 1 of Chapter 2 for marketing plan checklist items related to pricing decisions. Once you've worked through this marketing plan exercise, you can complete the Part 6 Marketing Planning Worksheet on your companion Web site at www.cengage.com/marketing/lamb. Continue the pricing stage of the strategic planning process for your chosen company with following exercises:
1. What price policy should your firm use? Are there any legal implications of this choice? Will there be differences in online versus off -line pricing policies? Are these differences related to your cost structure in the online environment? Why? Are these differences legal?
2. Note how easy it is to compare prices on the Internet. Check out price comparison sites such as www.pricescan.com, www.mysimon.com, and www.bizrate.com. Given how products and prices are displayed, how can your offering show a differential advantage if there is a price difference? As prices reach parity on the Internet, how else will you differentiate your products or services?
3. What kinds of price discounts can your company offer? Should discounted prices be offered to online buyers that off -line buyers do not receive? Why might you charge your online customers less than your off -line customers?
4. As you work on the Internet component of your marketing plan, you must decide how to set geographic pricing policies. Will you appear as a non geographic specific Internet provider and offer the same shipping costs to all, or will you have to charge more for longer distances? Will you market your product or services locally, regionally, or nationally? Just because you are on the Internet, does that mean you have to try to serve all markets? Explain.
1. What price policy should your firm use? Are there any legal implications of this choice? Will there be differences in online versus off -line pricing policies? Are these differences related to your cost structure in the online environment? Why? Are these differences legal?
2. Note how easy it is to compare prices on the Internet. Check out price comparison sites such as www.pricescan.com, www.mysimon.com, and www.bizrate.com. Given how products and prices are displayed, how can your offering show a differential advantage if there is a price difference? As prices reach parity on the Internet, how else will you differentiate your products or services?
3. What kinds of price discounts can your company offer? Should discounted prices be offered to online buyers that off -line buyers do not receive? Why might you charge your online customers less than your off -line customers?
4. As you work on the Internet component of your marketing plan, you must decide how to set geographic pricing policies. Will you appear as a non geographic specific Internet provider and offer the same shipping costs to all, or will you have to charge more for longer distances? Will you market your product or services locally, regionally, or nationally? Just because you are on the Internet, does that mean you have to try to serve all markets? Explain.
Not Answer
3
Setting the right price is one of the most challenging aspects of a marketer's job. How high a price will the market bear? What kind of message does the price communicate? How flexible can our price be? The answer to those and a multitude of other questions relating to price vary by industry, by product categories within an industry, and even by brand and store.
This video shows you a wide range of pricing issues and concerns facing new brands, like method, ReadyMade Magazine, and Acid+All, and established brands, like Sephora and Vans. There are both similarities and differences in the tools each company uses to set and fine-tune its base price. One idea, however, unifies all of the companies: pricing is a considered strategy, not an afterthought.
In what ways is the pricing strategy of Sephora similar to that of Acid+ All?
This video shows you a wide range of pricing issues and concerns facing new brands, like method, ReadyMade Magazine, and Acid+All, and established brands, like Sephora and Vans. There are both similarities and differences in the tools each company uses to set and fine-tune its base price. One idea, however, unifies all of the companies: pricing is a considered strategy, not an afterthought.
In what ways is the pricing strategy of Sephora similar to that of Acid+ All?
Web Based Activity
After watching the clip, compare the pricing strategies of the two products. Observe the strategies utilized and the objectives such as pricing strategies are to have within the market and among competitors. Consider strategies in fostering the brands' premium and specialty images within their respective markets. Determine the factors that differentiate the pricing strategies employed for each brand as well. Consider price skimming, penetration pricing, anchoring, and status quo pricing and observe whether any of these pricing strategies resemble those implemented by either of the two brands.
After watching the clip, compare the pricing strategies of the two products. Observe the strategies utilized and the objectives such as pricing strategies are to have within the market and among competitors. Consider strategies in fostering the brands' premium and specialty images within their respective markets. Determine the factors that differentiate the pricing strategies employed for each brand as well. Consider price skimming, penetration pricing, anchoring, and status quo pricing and observe whether any of these pricing strategies resemble those implemented by either of the two brands.
4
According to tradition, Black Friday-the day after Thanksgiving-is named as such because that's the day when retailers are said to become profitable for the year, or their sales move into "the black." Whether true or not, it does underscore how important that day, and the holiday shopping season in general, is to retailers. Holiday sales are estimated to make up as much as 40 percent of retailers' annual revenues and 50 percent of their annual profits. It should be no surprise then that retailers will pull out every trick in the book to get shoppers out and buying during the holiday season.
Retailers often must walk a fine line, however, in how they present their offers. Retailers often order their holiday inventories in the spring, and they must be careful to match sales with inventory levels so as to encourage customers to make more purchases but not in a way that destroys profitability. Increasingly, the pricing strategy is no longer just about Black Friday.
Timing then plays a major role in how Black Friday and holiday pricing strategies are executed, with many Black Friday pricing strategies designed to create a sense of urgency among shoppers. "Door-buster" sales and "limited-time offers" force consumers to make purchasing decisions faster, making it more difficult for them to comparison shop. For example, Gap Inc.'s Banana Republic offered 40 percent off certain sweaters between 11 a.m. and 2 p.m. These sorts of deals create a sense of exclusivity for shoppers.
Driven by that sense of urgency, shoppers often aren't as quick to consider exactly what kind of deal they are getting. Dan Ariely, professor of psychology and behavioral economics at Duke University, has done experiments testing buyer behavior. In one experiment, when offered a free $10 gift card or a $20 gift card for $7, most respondents chose the free one, though it was the less profitable alternative. When the $10 gift card was offered for $1, however, most respondent chose the more profitable $20 gift card. Ariely also has observed that shoppers may react differently to an item based on what they have to compare it to. A retailer will probably be able to sell more $50 jackets if it sets them next to several $100 jackets than if the $50 jackets are the highest priced item on the rack.
Retailers take many cues from the psychological behavior patterns of consumers when setting prices. Macy's created a percentage-off promotion, taking an extra 20 percent off an item which was already marked down 30 percent. Customers might initially conclude they are getting 50 percent off; however, taking 20 percent off an item already marked down 30 percent would create a total reduction of 44 percent. Retailers might also make slight changes to their sales that might not be immediately obvious. On Black Friday, Gap offered 50 percent off everything in its stores until 10 a.m., then offered fl at price deals on children's clothing the next day. So on Black Friday, a $29.50 girl's tulle skirt cost $14.75, but the next day it was sold at the fl at price of $15-a 25 cent increase from the previous day.
Even with the more basic pricing decisions, retailers must still make strategic decisions about which pricing strategy will work best to drive sales. In past years, Gap's Old Navy division had promoted $29.50 jeans at 50 percent off. This year, Gap changed its strategy to charge a fl at $15. In this case, the reason was not an issue of increasing margins, but one of visibility. As Old Navy president Tom Wyatt says, "The customer can see [the price] from 20 to 30 feet away," and knows exactly what he will be paying.
Instead of using a normal 20 percent discount, JCPenney offered "JCP cash" coupons at $10 off $50 in purchases, $15 off $75 in purchases, and $20 off $100 in purchases. With many other items marked down already, a customer might have to significantly increase her number of purchases in order to qualify for those discounts.
Many retailers have begun expanding their strategies beyond just Black Friday and the stores themselves. Many customers begin researching Black Friday deals the day before, and retailers such as Walmart are trying to turn those browsers into buyers, promoting Black Friday in-store deals on their Web site and offering Web exclusive deals on Black Friday and Thanksgiving Day itself. Walmart offered online discounts on nearly three times as many items as in the previous year. Retailers must be careful offering online deals, however. Customer who sat in line for hours for an in-store deal might not be too pleased to discover they could have gotten the exact same thing online.
For all their efforts, retailers seem to be making some headway. After two years of poor holiday sales, an estimated 212 million shoppers (up from 195 million the year before) spent $365 per person on average over the 2010 Thanksgiving weekend, up 6 percent from 2009. Online sales totals for Thanksgiving Day were $407 million, up from $318 million the year before, and $648 million on Black Friday, up from $595 million. Strong sales on Black Friday, however, are no guarantee of a successful holiday sales season. Retailers still must be strategic in managing their sales and pricing strategies throughout the season. As Mark Snyder, chief marketing officer for Sears Holdings Corp.'s Kmart operations, puts it, "The holidays are a marathon and not a sprint."
During the 2008 holiday season as it was becoming evident that the U.S. was entering a severe recession, many retailers found themselves with way too much inventory as consumers were sharply cutting back on spending. When holiday sales came in well below expected levels, retailers were forced to drastically slash prices to get rid of excess inventory. How would you handle a situation like that and what pricing strategies would you use to encourage customers to come out, while trying to avoid cutting too much into profits?
Retailers often must walk a fine line, however, in how they present their offers. Retailers often order their holiday inventories in the spring, and they must be careful to match sales with inventory levels so as to encourage customers to make more purchases but not in a way that destroys profitability. Increasingly, the pricing strategy is no longer just about Black Friday.
Timing then plays a major role in how Black Friday and holiday pricing strategies are executed, with many Black Friday pricing strategies designed to create a sense of urgency among shoppers. "Door-buster" sales and "limited-time offers" force consumers to make purchasing decisions faster, making it more difficult for them to comparison shop. For example, Gap Inc.'s Banana Republic offered 40 percent off certain sweaters between 11 a.m. and 2 p.m. These sorts of deals create a sense of exclusivity for shoppers.
Driven by that sense of urgency, shoppers often aren't as quick to consider exactly what kind of deal they are getting. Dan Ariely, professor of psychology and behavioral economics at Duke University, has done experiments testing buyer behavior. In one experiment, when offered a free $10 gift card or a $20 gift card for $7, most respondents chose the free one, though it was the less profitable alternative. When the $10 gift card was offered for $1, however, most respondent chose the more profitable $20 gift card. Ariely also has observed that shoppers may react differently to an item based on what they have to compare it to. A retailer will probably be able to sell more $50 jackets if it sets them next to several $100 jackets than if the $50 jackets are the highest priced item on the rack.
Retailers take many cues from the psychological behavior patterns of consumers when setting prices. Macy's created a percentage-off promotion, taking an extra 20 percent off an item which was already marked down 30 percent. Customers might initially conclude they are getting 50 percent off; however, taking 20 percent off an item already marked down 30 percent would create a total reduction of 44 percent. Retailers might also make slight changes to their sales that might not be immediately obvious. On Black Friday, Gap offered 50 percent off everything in its stores until 10 a.m., then offered fl at price deals on children's clothing the next day. So on Black Friday, a $29.50 girl's tulle skirt cost $14.75, but the next day it was sold at the fl at price of $15-a 25 cent increase from the previous day.
Even with the more basic pricing decisions, retailers must still make strategic decisions about which pricing strategy will work best to drive sales. In past years, Gap's Old Navy division had promoted $29.50 jeans at 50 percent off. This year, Gap changed its strategy to charge a fl at $15. In this case, the reason was not an issue of increasing margins, but one of visibility. As Old Navy president Tom Wyatt says, "The customer can see [the price] from 20 to 30 feet away," and knows exactly what he will be paying.
Instead of using a normal 20 percent discount, JCPenney offered "JCP cash" coupons at $10 off $50 in purchases, $15 off $75 in purchases, and $20 off $100 in purchases. With many other items marked down already, a customer might have to significantly increase her number of purchases in order to qualify for those discounts.
Many retailers have begun expanding their strategies beyond just Black Friday and the stores themselves. Many customers begin researching Black Friday deals the day before, and retailers such as Walmart are trying to turn those browsers into buyers, promoting Black Friday in-store deals on their Web site and offering Web exclusive deals on Black Friday and Thanksgiving Day itself. Walmart offered online discounts on nearly three times as many items as in the previous year. Retailers must be careful offering online deals, however. Customer who sat in line for hours for an in-store deal might not be too pleased to discover they could have gotten the exact same thing online.
For all their efforts, retailers seem to be making some headway. After two years of poor holiday sales, an estimated 212 million shoppers (up from 195 million the year before) spent $365 per person on average over the 2010 Thanksgiving weekend, up 6 percent from 2009. Online sales totals for Thanksgiving Day were $407 million, up from $318 million the year before, and $648 million on Black Friday, up from $595 million. Strong sales on Black Friday, however, are no guarantee of a successful holiday sales season. Retailers still must be strategic in managing their sales and pricing strategies throughout the season. As Mark Snyder, chief marketing officer for Sears Holdings Corp.'s Kmart operations, puts it, "The holidays are a marathon and not a sprint."
During the 2008 holiday season as it was becoming evident that the U.S. was entering a severe recession, many retailers found themselves with way too much inventory as consumers were sharply cutting back on spending. When holiday sales came in well below expected levels, retailers were forced to drastically slash prices to get rid of excess inventory. How would you handle a situation like that and what pricing strategies would you use to encourage customers to come out, while trying to avoid cutting too much into profits?
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5
People feel better when they think they are getting a great bargain when they shop. Knowing this, some retailers mark up items above the traditional retail price and then offer a 60 percent discount. If they had simply discounted the normal retail price by 20 percent the resulting "sale price" would have been the same. One retailer says that he is just making shoppers happy that they got a great deal when he inflates the retail price before discounting.
Does the AMA Statement of Ethics address this issue? Go to www.marketingpower.com and review the statement. Then write a brief paragraph summarizing what the AMA Code of Ethics contains that relates to retail pricing.
Does the AMA Statement of Ethics address this issue? Go to www.marketingpower.com and review the statement. Then write a brief paragraph summarizing what the AMA Code of Ethics contains that relates to retail pricing.
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6
Setting the right price is one of the most challenging aspects of a marketer's job. How high a price will the market bear? What kind of message does the price communicate? How flexible can our price be? The answer to those and a multitude of other questions relating to price vary by industry, by product categories within an industry, and even by brand and store.
This video shows you a wide range of pricing issues and concerns facing new brands, like method, ReadyMade Magazine, and Acid+All, and established brands, like Sephora and Vans. There are both similarities and differences in the tools each company uses to set and fine-tune its base price. One idea, however, unifies all of the companies: pricing is a considered strategy, not an afterthought.
Does it make sense for method to use product line pricing? Why or why not?
This video shows you a wide range of pricing issues and concerns facing new brands, like method, ReadyMade Magazine, and Acid+All, and established brands, like Sephora and Vans. There are both similarities and differences in the tools each company uses to set and fine-tune its base price. One idea, however, unifies all of the companies: pricing is a considered strategy, not an afterthought.
Does it make sense for method to use product line pricing? Why or why not?
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7
Setting the right price is one of the most challenging aspects of a marketer's job. How high a price will the market bear? What kind of message does the price communicate? How flexible can our price be? The answer to those and a multitude of other questions relating to price vary by industry, by product categories within an industry, and even by brand and store.
This video shows you a wide range of pricing issues and concerns facing new brands, like method, ReadyMade Magazine, and Acid+All, and established brands, like Sephora and Vans. There are both similarities and differences in the tools each company uses to set and fine-tune its base price. One idea, however, unifies all of the companies: pricing is a considered strategy, not an afterthought.
What is Vans' primary strategy for setting prices on tickets to the Warped Tour it sponsors?
This video shows you a wide range of pricing issues and concerns facing new brands, like method, ReadyMade Magazine, and Acid+All, and established brands, like Sephora and Vans. There are both similarities and differences in the tools each company uses to set and fine-tune its base price. One idea, however, unifies all of the companies: pricing is a considered strategy, not an afterthought.
What is Vans' primary strategy for setting prices on tickets to the Warped Tour it sponsors?
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8
You read in the chapter about the dangers of pricing products too low. It seems so obviously wrong, but do companies really price their products so low that they won't make any money? After all, companies are in business to make money, and if they don't, they're probably not in business for very long. Let's take a deeper look at the effects of pricing products too low or creating too deep discounts during sale periods.
Activity
1. The average markup for a produce department is 28 percent on selling price. When sold at 28 percent markup on selling price, bananas usually account for 25 percent of department sales and 25 percent of department markup. This week, because bananas were on special sale at the retailer's cost, the department sold twice as many pounds of bananas as usual. However, they were sold at zero markup. If all other things remain the same, what is the average markup on selling price for the entire produce department this week?
Activity
1. The average markup for a produce department is 28 percent on selling price. When sold at 28 percent markup on selling price, bananas usually account for 25 percent of department sales and 25 percent of department markup. This week, because bananas were on special sale at the retailer's cost, the department sold twice as many pounds of bananas as usual. However, they were sold at zero markup. If all other things remain the same, what is the average markup on selling price for the entire produce department this week?
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9
Setting the right price is one of the most challenging aspects of a marketer's job. How high a price will the market bear? What kind of message does the price communicate? How flexible can our price be? The answer to those and a multitude of other questions relating to price vary by industry, by product categories within an industry, and even by brand and store.
This video shows you a wide range of pricing issues and concerns facing new brands, like method, ReadyMade Magazine, and Acid+All, and established brands, like Sephora and Vans. There are both similarities and differences in the tools each company uses to set and fine-tune its base price. One idea, however, unifies all of the companies: pricing is a considered strategy, not an afterthought.
Compare the pricing strategies of method, ReadyMade Magazine, and Acid+ All. Do all of these relatively new brands use the same strategy? Explain.
This video shows you a wide range of pricing issues and concerns facing new brands, like method, ReadyMade Magazine, and Acid+All, and established brands, like Sephora and Vans. There are both similarities and differences in the tools each company uses to set and fine-tune its base price. One idea, however, unifies all of the companies: pricing is a considered strategy, not an afterthought.
Compare the pricing strategies of method, ReadyMade Magazine, and Acid+ All. Do all of these relatively new brands use the same strategy? Explain.
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Unlock for access to all 10 flashcards in this deck.
Unlock Deck
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10
According to tradition, Black Friday-the day after Thanksgiving-is named as such because that's the day when retailers are said to become profitable for the year, or their sales move into "the black." Whether true or not, it does underscore how important that day, and the holiday shopping season in general, is to retailers. Holiday sales are estimated to make up as much as 40 percent of retailers' annual revenues and 50 percent of their annual profits. It should be no surprise then that retailers will pull out every trick in the book to get shoppers out and buying during the holiday season.
Retailers often must walk a fine line, however, in how they present their offers. Retailers often order their holiday inventories in the spring, and they must be careful to match sales with inventory levels so as to encourage customers to make more purchases but not in a way that destroys profitability. Increasingly, the pricing strategy is no longer just about Black Friday.
Timing then plays a major role in how Black Friday and holiday pricing strategies are executed, with many Black Friday pricing strategies designed to create a sense of urgency among shoppers. "Door-buster" sales and "limited-time offers" force consumers to make purchasing decisions faster, making it more difficult for them to comparison shop. For example, Gap Inc.'s Banana Republic offered 40 percent off certain sweaters between 11 a.m. and 2 p.m. These sorts of deals create a sense of exclusivity for shoppers.
Driven by that sense of urgency, shoppers often aren't as quick to consider exactly what kind of deal they are getting. Dan Ariely, professor of psychology and behavioral economics at Duke University, has done experiments testing buyer behavior. In one experiment, when offered a free $10 gift card or a $20 gift card for $7, most respondents chose the free one, though it was the less profitable alternative. When the $10 gift card was offered for $1, however, most respondent chose the more profitable $20 gift card. Ariely also has observed that shoppers may react differently to an item based on what they have to compare it to. A retailer will probably be able to sell more $50 jackets if it sets them next to several $100 jackets than if the $50 jackets are the highest priced item on the rack.
Retailers take many cues from the psychological behavior patterns of consumers when setting prices. Macy's created a percentage-off promotion, taking an extra 20 percent off an item which was already marked down 30 percent. Customers might initially conclude they are getting 50 percent off; however, taking 20 percent off an item already marked down 30 percent would create a total reduction of 44 percent. Retailers might also make slight changes to their sales that might not be immediately obvious. On Black Friday, Gap offered 50 percent off everything in its stores until 10 a.m., then offered fl at price deals on children's clothing the next day. So on Black Friday, a $29.50 girl's tulle skirt cost $14.75, but the next day it was sold at the fl at price of $15-a 25 cent increase from the previous day.
Even with the more basic pricing decisions, retailers must still make strategic decisions about which pricing strategy will work best to drive sales. In past years, Gap's Old Navy division had promoted $29.50 jeans at 50 percent off. This year, Gap changed its strategy to charge a fl at $15. In this case, the reason was not an issue of increasing margins, but one of visibility. As Old Navy president Tom Wyatt says, "The customer can see [the price] from 20 to 30 feet away," and knows exactly what he will be paying.
Instead of using a normal 20 percent discount, JCPenney offered "JCP cash" coupons at $10 off $50 in purchases, $15 off $75 in purchases, and $20 off $100 in purchases. With many other items marked down already, a customer might have to significantly increase her number of purchases in order to qualify for those discounts.
Many retailers have begun expanding their strategies beyond just Black Friday and the stores themselves. Many customers begin researching Black Friday deals the day before, and retailers such as Walmart are trying to turn those browsers into buyers, promoting Black Friday in-store deals on their Web site and offering Web exclusive deals on Black Friday and Thanksgiving Day itself. Walmart offered online discounts on nearly three times as many items as in the previous year. Retailers must be careful offering online deals, however. Customer who sat in line for hours for an in-store deal might not be too pleased to discover they could have gotten the exact same thing online.
For all their efforts, retailers seem to be making some headway. After two years of poor holiday sales, an estimated 212 million shoppers (up from 195 million the year before) spent $365 per person on average over the 2010 Thanksgiving weekend, up 6 percent from 2009. Online sales totals for Thanksgiving Day were $407 million, up from $318 million the year before, and $648 million on Black Friday, up from $595 million. Strong sales on Black Friday, however, are no guarantee of a successful holiday sales season. Retailers still must be strategic in managing their sales and pricing strategies throughout the season. As Mark Snyder, chief marketing officer for Sears Holdings Corp.'s Kmart operations, puts it, "The holidays are a marathon and not a sprint."
Are the Black Friday deals discussed here examples of seasonal discounts? Why or why not?
Retailers often must walk a fine line, however, in how they present their offers. Retailers often order their holiday inventories in the spring, and they must be careful to match sales with inventory levels so as to encourage customers to make more purchases but not in a way that destroys profitability. Increasingly, the pricing strategy is no longer just about Black Friday.
Timing then plays a major role in how Black Friday and holiday pricing strategies are executed, with many Black Friday pricing strategies designed to create a sense of urgency among shoppers. "Door-buster" sales and "limited-time offers" force consumers to make purchasing decisions faster, making it more difficult for them to comparison shop. For example, Gap Inc.'s Banana Republic offered 40 percent off certain sweaters between 11 a.m. and 2 p.m. These sorts of deals create a sense of exclusivity for shoppers.
Driven by that sense of urgency, shoppers often aren't as quick to consider exactly what kind of deal they are getting. Dan Ariely, professor of psychology and behavioral economics at Duke University, has done experiments testing buyer behavior. In one experiment, when offered a free $10 gift card or a $20 gift card for $7, most respondents chose the free one, though it was the less profitable alternative. When the $10 gift card was offered for $1, however, most respondent chose the more profitable $20 gift card. Ariely also has observed that shoppers may react differently to an item based on what they have to compare it to. A retailer will probably be able to sell more $50 jackets if it sets them next to several $100 jackets than if the $50 jackets are the highest priced item on the rack.
Retailers take many cues from the psychological behavior patterns of consumers when setting prices. Macy's created a percentage-off promotion, taking an extra 20 percent off an item which was already marked down 30 percent. Customers might initially conclude they are getting 50 percent off; however, taking 20 percent off an item already marked down 30 percent would create a total reduction of 44 percent. Retailers might also make slight changes to their sales that might not be immediately obvious. On Black Friday, Gap offered 50 percent off everything in its stores until 10 a.m., then offered fl at price deals on children's clothing the next day. So on Black Friday, a $29.50 girl's tulle skirt cost $14.75, but the next day it was sold at the fl at price of $15-a 25 cent increase from the previous day.
Even with the more basic pricing decisions, retailers must still make strategic decisions about which pricing strategy will work best to drive sales. In past years, Gap's Old Navy division had promoted $29.50 jeans at 50 percent off. This year, Gap changed its strategy to charge a fl at $15. In this case, the reason was not an issue of increasing margins, but one of visibility. As Old Navy president Tom Wyatt says, "The customer can see [the price] from 20 to 30 feet away," and knows exactly what he will be paying.
Instead of using a normal 20 percent discount, JCPenney offered "JCP cash" coupons at $10 off $50 in purchases, $15 off $75 in purchases, and $20 off $100 in purchases. With many other items marked down already, a customer might have to significantly increase her number of purchases in order to qualify for those discounts.
Many retailers have begun expanding their strategies beyond just Black Friday and the stores themselves. Many customers begin researching Black Friday deals the day before, and retailers such as Walmart are trying to turn those browsers into buyers, promoting Black Friday in-store deals on their Web site and offering Web exclusive deals on Black Friday and Thanksgiving Day itself. Walmart offered online discounts on nearly three times as many items as in the previous year. Retailers must be careful offering online deals, however. Customer who sat in line for hours for an in-store deal might not be too pleased to discover they could have gotten the exact same thing online.
For all their efforts, retailers seem to be making some headway. After two years of poor holiday sales, an estimated 212 million shoppers (up from 195 million the year before) spent $365 per person on average over the 2010 Thanksgiving weekend, up 6 percent from 2009. Online sales totals for Thanksgiving Day were $407 million, up from $318 million the year before, and $648 million on Black Friday, up from $595 million. Strong sales on Black Friday, however, are no guarantee of a successful holiday sales season. Retailers still must be strategic in managing their sales and pricing strategies throughout the season. As Mark Snyder, chief marketing officer for Sears Holdings Corp.'s Kmart operations, puts it, "The holidays are a marathon and not a sprint."
Are the Black Friday deals discussed here examples of seasonal discounts? Why or why not?
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