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How 50% Discounts Really Work

submitted on October 28, 2010 by jack69darin in "Member's Lounge"
Looking for a good deal? How’s 50% off sound? Once a bargain-basement super-deal, getting half-off is now about what shoppers can – and should – expect from a sale, experts say. And in preparation for the holiday rush, stores have figured out how to give it to them and still turn a profit.

Markdowns have already approached that level in toys and electronics, which account for much of holiday spending, says Alison Paul, leader of the retail practice for Deloitte. Household goods and small appliances are also likely to hit that magic mark by Black Friday. “If the price is already 50% off, take it and take it now,” says Jeff Green, who runs a retail consulting firm.

Although half-off may seem like a boon to consumers, retailers are still profiting, says Adrienne Tennant, a retail analyst at investment bank Janney Montgomery Scott. These deep and temporary markdowns are essentially loss-leaders, designed to lure shoppers into buying more items in one visit – or to generate more visits from shoppers wise to the strategy of rotating discounts. “[Consumers] have traditionally been quite motivated by sales because we understand that means ‘here today and gone tomorrow,’” says Kit Yarrow, a professor of psychology and marketing at Golden Gate University in San Francisco. But in the store, a deal for the shopper becomes an opportunity for the retailer to up-sell.

One thing stores can’t do to make their deals look good: inflate prices. It’s illegal for stores selling other companies’ products (such as Sears (SHLD: 71.98, -1.80, -2.43%) or Best Buy (BBY: 42.90, +0.04, +0.09%)) to set prices above those of the manufacturer, says Gloria Barczak, a professor of marketing at Northeastern University in Boston. Single-brand stores like Gap (GPS: 19.15, -0.19, -0.98%) or Ann Taylor (ANN: 22.52, +0.78, +3.58%) can pull a price switch but rarely do -- and experts say it’s ineffective. Loyal shoppers are quick to spot price or quality changes and won’t buy or will look elsewhere, Barczak says.

There are three big ways retailers are able to give you that 50% off — and maintain their profit margins. But savvy shoppers can separate the real values from the deals designed to get you to mindlessly hand over your credit car

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