For more than 40 years I was deeply involved in planning and executing sales promotions in all kinds of retail environments. One of the things that has evolved over those years are the retail pricing strategies. Terminology is important and what is sold as “sale” items are not exactly what you might think they are. It sounds so simple, doesn’t it? An item “on sale” years ago was just that. It was at a higher price yesterday and it’s lower today, thus on sale. Well, let me introduce you to Retail Speak 101 and see if you still think it’s that simple.
Retail Speak 101
Almost like a secret language, retailers advertise prices using terms that sound straightforward, but actually mean something very specific. Here’s a guide to deciphering the code.
1. Regular Price
It used to be that a regular price was the price that was “fair trade” approved or pre-ticketed on the merchandise by the manufacturer. Years ago, the fair trade rules were dissolved and although some merchandise does have a price on the item (or the bag or box), those prices may or may not be the regular prices. Today, all prices that are introduced for sales are the decision of the retailer and may be at any price they choose it to be. In other words, they simply make up the regular price so that at a later point when they are promoted on sale, they will show a large discount and savings to you, the consumer. It’s not illegal, but it may be deceiving which I will explain further as we go along.
2. Sale Price
The item was established at a price we call regular, and is now reduced temporarily to a lesser “sale price” for a specified period of time, like a day or a week. Not a single piece of the merchandise had to sell at the regular price, but it had to be offered at that price for some required timeframe (usually 10 days but it may vary by state). The sale price must be temporary by definition to be called a sale price.
3. Original Price
The original price is the regular price, after it has been promoted on sale at least one time. For example, a man’s shirt that was introduced at $25.00 on November 1st and sold zero shirts at that price, is later put on sale for $15.00 and sells hundreds at that price when advertised. It can then return to the regular price after the sale event, or it can be marked at $21.00 and forever more be quoted as “originally $25.00 and now at $21.00, you save $4.00”.
Understand the Game
So why would a retailer do that, you ask? You may have wondered how a store can advertise items at 30%, 40%, and even 50% off or more. Many items that are sold are intended to be sold at lower retail prices for promotions that will still enable the retailer to make his normal profit, or margin as it is called, while showing the customer a big savings which motivates purchases. This strategy often leads us to believe we are getting something worth more than it actually is.
Let’s take a look at the example I used. Men’s shirts in a moderately priced store may not sell particularly well above $20.00. When offered at $25.00 they may not sell at all. The stores may find a manufacturer that produces a shirt for a wholesale cost to them at $8.00 each if they purchase a minimum quantity. It may be 100 or 10,000 depending on the store and the manufacturer. The store usually looks for a margin of double its cost to sell merchandise (with transportation costs added in and a trade discount taken out if they have negotiated terms).
Now for a sale (let’s say November 8-14), the store can establish a regular price of $25.00, promote it as “on sale for $15.00 (a savings of 40% off the regular price)” and still maintain their margin. After the event, any shirts that remain can be marked at an interim price of $21.00 and extra margin is earned each time one is sold. If they choose to promote it again, they can use the original price to show a huge discount and sell it at any price they choose. If and when they discontinue the item altogether, they can advertise them as half price shirts “originally $25.00 and now $12.50!” (or even lower and still make some profit until the item is sold at less than $8.00).
Stores have really developed a lot of sales techniques to get you excited to buy! buy! buy! Some of them include:
- Advertising percentages off to make you think they are practically giving merchandise away.
- Advertising BOGO’s – buy one, get one free! Or buy one and get a second at half price.
- Advertising an additional percentage off the sale price.
Here’s what that last technique looks like in our men’s shirt example: “Men’s shirts were originally $25.00, now $21.00. For one day only (note the scarcity tactic), take an additional 25% off the sale price and buy them for $15.75 each”. Notice that with that extra reduction, they still sell for more than the $15.00 sale price from November 8-14!
You will also see terms like value price, special value, and special purchase used in advertising. As one who used those terms freely, that may mean you’ve found a bargain, but often it just means that the store has struck gold and you may not be getting the very best prices. Usually these prices refer to new items that the store hasn’t carried before, they were reduced by the manufacturer, and/or the store doesn’t have the time or luxury of establishing an original or regular price. It may be a good deal for them and only a fair deal for you as it is sold at higher margins than they usually make. Most often it is excluded from percentage off sales, BOGO’s and other sales promotions.
Get the Best Deals
Finally, my very favorite: clearance sales! Here’s where you can be certain that the price you see is as good as it gets. Prices at clearance are to rid the store of the items and often they are at cost or below when you purchase them. If you’re lucky enough to find some at clearance prices with an extra percentage off…bingo, you are a winner! Yes, that does happen and when you get something you want at those prices, you may have the same feeling of euphoria that I get.
Just remember one biggie: if it’s something you won’t use, it’s not a bargain at any price!
So there you have it. You’re armed with the knowledge you need as you approach the biggest shopping time of the year. Do you think you are ready to find the best deals? Do you understand the rules of the game?
Image courtesy of Stuart Miles at freedigitalphotos.net (with changes)