Welcome to the fifteenth post in our series of “Retail Strategy Secrets”! Here you will learn the angles, approaches, and tactics retailers are using every day to try and separate you from your hard-earned cash. Understanding these unlocks the door to spotting great deals, and you never want to pass up a Dealicacy…
This is the act of taking the cost of an item being purchased from a vendor and doubling, tripling, etc. it to achieve an actual or suggested price for resale. Once the rule for how to price at retail, pure “Keystoning” has more or less fallen out of favor in recent years. These days, it seems to have “mutated” into a fresh new form…First, a little history.
Keystone pricing appears to have some roots in the Great Depression era. With money difficult to come by, the pricing strategy helped to overcome many obstacles to being (and staying) in business. For example, jewelry was commonly keystoned at 3 times the cost, and then offered for resale for no money down plus a weekly payment. The amount of margin made up for poor/bad credit (there were no credit score reporting services then), missed payments, and the like. As you can see, keystoning generally made things easier in a time of inconsistent wages and banks unwilling to extend loans.
Fast forwarding to today, there is much more competition in nearly every market (not just jewelry). Plus, the internet has made it extremely fast and easy to comparison shop for everything from commodities to large ticket items, furniture, and even professional services.
Since so many consumers are shopping on price alone, it is difficult to sustain “triple-key” or even the doubling of price. In fact, failure to offer a discount of some sort frequently drives consumers away, with many price-conscious consumers never returning.
This consumer mentality of anticipating and expecting discounts has led to an evolution in how keystone pricing is put to use. Keystone’s latest form can be seen in “discounting”:
- Items for resale are purchased from the vendor at a low negotiated price,
- “Keystoned” as much as 500% to achieve a list price / MSRP,
- and the actual retail price is set at a “discount” that better generates consumer interest (50-75% off list price)
From this point, some retailers then rotate through a constant promotion cycle for the product (10% off in week one, BOGO week two, 33% off week three, etc.), or consistently mail out 15-20% off “any item” coupons. Retailers that are notorious for this practice include department stores and chains specializing in low prices. Notable examples include Kohls, Gordman’s, and many others.
As you can see, now we have additional reasons why we don’t want to buy at list price or MSRP. More times than not the first price you see is more or less arbitrarily set by the vendor or reseller as a starting point. The sole purpose to gain your attention through offering a contrasting price.
In other words, if it isn’t currently on sale, it likely will be soon. If it is on sale (and you don’t absolutely need it right away), make a note and see what discount next week brings. If you bite now shopping on convenience alone, you are simply giving extra money to the retailer – which they gladly take, of course.
Your Dealicacy awaits – you simply have to be patient.
Next up, Multiple Pricing.