If we Americans love one thing, it's a bargain. And we're savvy about it, too. We know that only suckers pay retail, that the Internet is basically one giant going-out-of-business sale, and that there is always a coupon. You want to stick us with the sticker price? WE WILL TURN THIS CAR AROUND. We will not be hustled.
Of course, we're getting hustled every day. Much of the time, our beloved discounts are just a thinly veiled fiction. Exempli gratia, J. C. Penney. Not only is it the place you have to walk through on your way to the Cinnabon, it's also historically been the King of Department Store Discounts. Big time. In January of 2012, in fact, less than 1% of the store's revenue came from full-price purchases.
On the face of it, all those deals seem awesome, but at some point — say, when almost 75% of your merchandise is discounted by at least half — you are no longer offering "discount" prices; you're simply offering what industry insiders refer to as "prices." Except these "prices" are kind of an enormous pain to deal with, because first you have to take what you want to sell for $40 — a couple of sweatshirts, for instance — change all the price tags, then design and print and distribute coupons and signs and banners and fliers and inserts. Not to mention the emails and Tweets and Facebook posts and Snapchats and whatever thing is happening now. Plus your inventory management people are borderline hysterical because their normally tame turnover projections are fluctuating wildly with every new "sale," and somebody is screaming because Theresa from Accounting caught an errant projection in the eye. And basically it's a ridiculous mess. For example, here are four completely obtuse ways to say "Hey everyone, we'll sell you a pair of sweatshirts for $20 each."
It's especially ridiculous because, as mentioned above, we're savvy. We understand exactly what's going on behind the scenes, and we've come to accept it as normal. In fact, the whole reason we know only suckers pay retail is that we've been conditioned to understand that "retail price" is a completely meaningless number whose sole purpose is to let us know how good a deal we're getting when the thing is on sale. Which is always.
There are a couple of problems with this system. It's expensive and logistically annoying for retailers, sure; but it's also not great for the consumers. Quick: would you rather get 33% more hand lotion for the normal price, or 33% off the price of a normal sized bottle? Yup, the discount is a far better deal, even though the giant numbers on my hypothetical sign are exactly the same. And even if the two offers are actually the same value (let's say 50% more lotion vs. a 33% discount), people will overwhelmingly choose the bonus lotion over the discounted lotion. We really, really like bonus stuff. We're savvy, but we're also human, which is to say occasionally irrational.
Enter Ron Johnson, who took over J. C. Penney in early 2012 and promised to put an end to "fake prices." Instead of inflating sticker prices and then offering about a 40% discount on average, he decided to drop the discounting charade and just lower the retail prices by an average of about 40%. Simple. No more meaningless numbers, no more zany sales. Just stable, reasonable prices that weren't significantly different from what consumers were already paying. Finally, an end to the madness. What's not to like?
Apparently everything. J. C. Penney lost a bunch of money, Johnson got canned, and the company immediately set about apologizing for the error of its ways. The error being, it seems, that the whole idea was just too reasonable and sane. Johnson miscalculated badly, because he didn't count on us. The consumers. We crave bargains, even when they don't make any sense. We don't want to pay less money, we want to feel like we're winning at shopping. And that's a tough habit to kick.
Teachers, want to have this conversation in your class? Check out our latest lesson, Coupon Clipping.