justice_statue

A Few Notes on Price Fixing

The recent posts on MSRP, MAP, and Prestige Pricing got me thinking a bit (and some of you pinged me about this too) – it is amazing just how close to *illegal* the more aggressive strategies (such as MAP) are. To take a bit of a break from the “Retail Strategy Secrets” series, I thought it might be fun to explore a bit more background on price fixing and fair trade. 

Don’t worry, no legalese here, just some nice examples and a bit of history.  Then we’ll get right back to more retail pricing strategies right away with the next post.  At the very least, you’ll now when you could call in the Feds on a sneaky retailer! 🙂 

Let’s start with an example (details modified to “protect the innocent”)…

psychological_pricing

Retail Strategy Secret #14: Psychological Pricing

Welcome to the fourteenth 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…

Psychological Pricing

Just as it sounds, psychological pricing is a strategy employed by retailers to sway you into believing you are getting a fair, low, or best possible price.

Do you recall the famous study where the dog salivates at the sound of a bell, even when there is no food presented (“Pavlov’s Dogs”)?  Classical conditioning 101.  With only a slight twist of this concept…

prestige_pricing

Retail Strategy Secret #13: Prestige Pricing

Welcome to the thirteenth 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…

Prestige Pricing

Prestige Pricing is the retail strategy of setting prices above the competition, and is more or less exactly what it sounds like: an effort to attract status-conscious consumers to a brand or product.  Factors that go into consideration for prestige pricing include location (such as an up-scale mall), product exclusivity (items generally not available anywhere else), unique customer service (allowing tire returns at clothing stores), higher quality (perceived or real), etc. And the list goes on and on. In fact, differentiation and the art of finding new reasons to maintain or justify resetting to higher price points is not only a big factor in prestige pricing…

MAP

Retail Strategy Secret #12: MAP

Welcome to the twelfth 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…

MAP – Minimum Advertised Price

Much less flexible than MSRP, Minimum Advertised Price (MAP) is a form of Vendor Pricing that prohibits retailers from advertising prices below a specific amount. In many cases, MAP agreements very nearly imply that retailers not even sell below a given amount.

From a legal standpoint, MAP is riding a very fine line between good practice and price fixing (bad)…

Flexible

Retail Strategy Secret #11: MSRP

Welcome to the eleventh 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…

MSRP

Manufacturer Suggested Retail Price (MSRP) is the act of setting product resale prices using manufacturer recommendation as guidance. Perhaps most prominent in the car industry, you will also see it on price tags at many department stores (where it is also referred to as “list price”).

MSRP helps to standardize prices across retailers and their separate locations, but it is one of the more flexible forms of Vendor Pricing. It is not necessarily the price the consumer pays…

Vendor Pricing

Retail Strategy Secret #10: Vendor Pricing

Welcome to the tenth 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…

Vendor Pricing

Simply defined, “Vendor Pricing” is the act of setting product prices in accordance with and/or otherwise based on manufacturer recommendation.  As you can imagine, however, things grow more complicated from there.

Many smaller retail shops use Vendor Pricing strategies to avoid competing directly with larger retailers…

markup

Retail Strategy Secret #9: Mark-Up Pricing

Welcome to the ninth post in our series of “Retail Strategy Secrets” (and we’re only about half-way through)!  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…

Mark-up Pricing

“Mark-up” (also seen as markup, and commonly referred to as margin) is basically an amount added to the cost of an item.  The cost plus markup equals the selling price, and the markup is usually based on a percentage of base cost of the item.

Pretty straightforward, I know.  However, there’s a bit more to it. The base cost as viewed from a retailer’s standpoint is already a multi-layer markup rooted in a number of factors.  Additionally, each layer includes a particular entity’s profit margin and operating expenses for bringing the product to market.

So how does knowing this improve our chances of finding a Dealicacy?  Glad you asked…

penetration_pricing

Retail Strategy Secret #8: Penetration Pricing

Welcome to the eighth 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…

Penetration Pricing

Penetration Pricing is the act of a retailer introducing a new product at a very low price (but not necessarily at a loss) in hopes of quickly building sales volume and/or brand recognition. Optionally, after the product gains market share, prices can be raised.

Examples are numerous, but may be best exemplified in a grocery store scenario. Have you ever walked down the freezer isle glancing for the current price on your favorite brand of ice cream?  Your first look may confirm your suspicion that Ben and Jerry’s is not on sale this week.  Hold on though…

skimming

Retail Strategy Secret #7: Price Skimming

Welcome to the seventh 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…

Price Skimming

Despite the sound of the phrase, “Price Skimming” has nothing to with embezzlement.  In fact, it isn’t even remotely shady and simply equates to testing the upper limits of what the market for newer products will bear.  An example of capitalism at its finest.

From a formal standpoint, Price Skimming is the practice of charging high prices for new products – especially at their introduction, and gradually lowering the price until the end of the product’s life cycle.

The objective of this approach is only slightly different from a manufacturer’s versus a retailer’s standpoint.  For the former it is to recover development costs as quickly as possible, before competitors compete and undercut price.  For the latter it is to (of course) boost profitability at peak points of demand for a product.  An example for both cases is…

golden-handcuffs

Retail Strategy Secret #6: Loyalty Pricing

Welcome to the sixth 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…

Loyalty Pricing

This pricing technique involves a retailer offering different prices to different customers for the same product (or products).

Wait a second, retailers do this?  Isn’t that price discrimination?  Yes, they do.  And depending on how it’s implemented, price differentiation (not discrimination) is perfectly legal – even encouraged.

A very prominent example came to light in the suburbs of Minneapolis, Minnesota about two years back.  A retailer headquartered in Minneapolis that you have likely heard of (Target) was accused of price discrimination.  Diapers and other health and living products were being watched closely by a couple of consumers (Dealicacy kind of people!), and a big “aha” came to light. For nearly every product they were looking at, prices were 25 cents to a couple dollars MORE in one location than the other…