For The Retailer, It’s All About Making The Sale

A recent Memo article in which I told the story of a friend of mine buying a piece of diamond jewelry in Los Angeles for his wife, having been enticed into the store by a 75% discount poster in its window, led former industry analyst Ken Gassman to make some very valid and important points.

Firstly, Ken rightly points out, price discounting has become the norm for retail merchants in the U.S. market, "whether they are jewelers, home center merchants, office supply retailers, electronics sellers, or any other sector (the notable exception in the jewelry industry is Tiffany and a few other high-end merchants, but that’s another story). Price promotions are a way of life for American retail merchants."

Gassman quotes from an article on retailing which has the line: “A sale sign causes a physiological arousal in [shoppers’] brains and clouds our reasoning.” He says: "I’ve seen merchandise come from suppliers with price tags with fake high prices; those prices were marked out by the supplier, and lower prices were shown on the same tag. The US retail merchants need to do nothing other than put the goods in their showcases. The consumer thinks he/she is getting a great deal, while the merchant gets the normal profit percentage. It’s a game.

"In retailing, this is called “high-low” pricing. It’s legal, as long as the merchandise is actually for sale for a “reasonable” length of time at the high price. In the case of pre-priced tags with markdowns already taken, it is probably not legal. Some merchants try to get around the laws governing high-low pricing by using such terms as “compare at”. Most of the time, these vague marketing terms are illegal; for sure, they aren’t ethical.

"I’ve worked with enough jewelers in the US to say this about the example in the Memo article: I’ll bet the 75% Off Sale that the jeweler advertised is fake. Despite consumer laws, their jewelry was never meant to be sold at the fake high prices shown. Here’s what more important: at 75% off, the jewelry retailer still made the customary markup for the industry, because the 75% Off was fake. And, I’d wager, the shopper paid roughly the same price he/she would have paid at a mall jewelry store.

"With diamond jewelry, there’s the ongoing issue of over-graded diamonds. So, if the shopper actually received a diamond certificate – an unlikely event from those merchants who offer discounts that are too good to be true – and that shopper could compare his/her up-graded diamond to a properly graded diamond, he/she would be misled into thinking that he/she had gotten a 'real deal.' When I was on the jewelry industry speakers’ circuit, I — along with some other notable sales trainers – regularly chastised jewelers about “high-low” pricing. It cheapens the product, and it hurts the image of the retail merchant and the jewelry industry. And, it is less than ethical.

"There are two problems with an industry which is accustomed to high-low pricing. First, no self-respecting retail merchant is going to be the first one to go to 'one-price' shopping. 'Everyone discounts; if I marked goods fairly, it would be retail suicide,' they’d say. And, you know what? They are correct! The second problem is how to handle the American shopper who has come to expect a discount when they shop, no matter what time of year or what the sales event is. American shoppers are trained — by retailers — to seek discounted goods."

These retail tricks are not just prevalent in the United States, of course. In fact, discounting is even worse in other parts of the world. "Bargaining is a way of life in countries like India, and shoppers expect it," says Gassman. "That makes it even more difficult to compare relative value. I’ve seen jewelers in some parts of the world tell me (when I was a mystery shopper), “This diamond ring is valued at $5,000, but I’ll let you have it for $2,500!” I knew enough to know that at $2,500, the ring was still over-priced.

"A jewelry merchant’s job is to sell the customer, so they do it any way they can," he concludes. "I could go on and on about how retail merchants generate sales and capture customers — some marketing methods are OK, some not. But, for sure, as the article says, “A sale sign causes a physiological arousal in our brains and clouds our reasoning.” Retail merchants know this, and they use it to their advantage. For the retailer, it’s all about making the sale."