
It’s Discounted, but Is It a Deal? How List Prices Lost Their Meaning - sciurus
http://www.nytimes.com/2016/03/06/technology/its-discounted-but-is-it-a-deal-how-list-prices-lost-their-meaning.html
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feintruled
There is a law in the UK that says for a product to count as being on 'sale'
(introduced due to the almost legendary state of permament en-sales-ment some
UK shops seemed to inhabit), it must have been for sale at the higher price
for a certain minimum amount of time. Therefore on sales fliers you will see
little footnotes actually specifying the dates the product was for sale at the
higher rate.

Of course, one still suspects tomfoolery - the date ranges are suspiciously
short, and it doesn't have to be every store in a chain. Tempted to feel sorry
for some poor mark in some remote outpost who accidentally paid the higher
sacrificial price...

I remember my own sad experience with sales, rushing to sign up for a new
kitchen before the "Februrary 20% off" sale ended. The sale ended alright -
only to be replaced by the "March 30% off" sale. I was a wiser man after that.

~~~
PaulRobinson
I work at an e-comm retailer, and we sometimes will have two sales within 28
days of each other. If a product is in both sales, we have to indicate in the
second sale it had been on sale within the last 28 days.

I found it surprising when this came up, because I don't recall seeing that
footnote on any other site, ever.

Also, there is a town somewhere in the North of England/South of Scotland
where all the big sofa/kitchen retailers never discount their stock. As such,
they can claim it's been on sale at full retail value somewhere in the UK for
the last 30 days, and other such foolishness. It's silly, really.

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tominous
The article focuses on how a high list price can deceive consumers into
thinking they're getting a good deal. That's true but it's not the whole
story.

Sometimes a high list price is combined with custom discounts to extract the
most money from each customer. You see this more often when a market is closer
to a monopoly, e.g. enterprise software with high lock-in.

In microeconomics you learn about the supply-demand curve. Normally there is a
gap between the price the customer is willing to pay and the price the
supplier is willing to accept. Depending on the market price, some of this gap
is the consumer surplus, and some is the producer surplus (i.e. value gained
by each party).

When a supplier has the power to set their price depending on the customer,
they can capture all of the value under the demand curve and maximise profit
at the expense of the customer.

A related strategy in retail is coupon discounts. Price-sensitive customers
will take the time to use the coupon (when they otherwise would have not
purchased), while others will pay the list price. This helps maximise the
profit overall.

~~~
dazc
> A related strategy in retail is coupon discounts. Price-sensitive customers
> will take the time to use the coupon (when they otherwise would have not
> purchased), while others will pay the list price. This helps maximise the
> profit overall.

But not when a simple search for 'retailer coupon' reveals a million click
jacking links designed to extract a free commission.

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cgriswald
"We are selling this at a discount of %30 of this completely arbitrary price
point" is a meaningless statement. This kind of hand-waving around price isn't
exactly new.

I used to buy these bags of frozen chicken breasts every week. They were
always $10. One week, the price shot up to $13. I didn't buy them that week.
The very next week was labor day weekend and they were advertised as "on
sale". The price? $12. They went back down to $10 a week or two after that.

I'm a little surprised people who shop online are influenced by "list price."
I'm influenced by the amount of money leaving my wallet. If it's $5 cheaper to
buy an item at website X rather than website Y, I'll do it, unless shipping
costs eat up the savings. It's not really that inconvenient (versus a retail
store which requires you to go to another store and possibly return if the
prices aren't better there). But I'm looking at "how much real money is going
to leave my account" rather than "how much imaginary money am I going to
save".

~~~
seanp2k2
Tax too. Sometimes Amazon will have a better price and free shipping (and
prime) but due to CA tax it'll be cheaper to order from out-of-state (free
shipping is pretty common). Amazon also doesn't really do many coupons, so
promo codes are more likely to work at smaller places or the mfg website
(usually only worth it for larger purchases).

~~~
marincounty
I've been following Amazon prices the past 7 years. I'm not doing it
scientifically, but I'm trying to be fair. Im using am/fm Portable radios as a
item to study. The radios are a Sony portable radio, and a Kaitko portable
radio.

Both radios have gone up in price, and the price increase seems unrelated to
inflation.

I like Amazon, but they are not the cheapest in town anymore, at least in the
catagories I buy.

What are you people buying? What are the good deals? I don't see deals like I
used too. Is it just me? I know I don't buy a lot of crap, like I used to-- so
my perspective might be skewed?

~~~
manyxcxi
I've read in multiple places about Amazon's main pricing strategy, which isn't
all that different from what Walmart employs. They pick specific
brands/models/categories of product at which they will absolutely be the
cheapest. Everything else is just regularly priced. So if you follow a 'non-
standard' product for them you would probably find that it probably is about
the same price everywhere else- with one exception: there have been bot-price
setting wars by different sellers that have escalated the prices of arbitrary
products to insane levels. This is where you see the $200k toothbrush or $1m
used book.

I do the most of my shopping at Amazom because I can build up my basket
through the week/month and just do one order without leaving my house. Price
checks to different retailers in my area find that usually Amazon is slightly
less or exactly the same price and I don't have to spend hours going to the
retail store. Finally, I can get it all in one place instead of going to
Target, Home Depot, and wherever else.

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pkaye
This is why consumers should be ruthless in their own way in buying stuff.
Don't concern yourself with the discount but rather the effective price with
the product value and its alternatives. Use peer ratings on products, compare
prices online, price tracking sites. I've placed stuff on my Amazon wish list
and a few days later seen it for a lower price. If a retailer is pulling a
fast one on me, I just stop using them.

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dsr_
It seems to me that many of the objections in comments so far assume that
people are efficient and rational consumers.

Economics often assumes that. Politics sometimes assumes that.

It's nearly always an incorrect assumption.

~~~
TheOtherHobbes
It's rational to claim that people are efficient and rational consumers even
when they aren't, because there are clear economic and political benefits to
pretending the claim is true, even though truly rational and efficient
individuals can see it's utter nonsense.

~~~
TheSmiddy
We are approaching a world where every consumer can have perfect information
and thus start acting truly rationally. If im buying something >$50 I'll
quickly google it just to make sure i can't get it cheaper at another store.

~~~
brianwawok
Some markets this sucks like mattress. No two chains sell the same mattress.
It may look the same and be made by the same manufacturer, but it will have
different logos and model numbers between stores.

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PaulRobinson
The one that annoys me is blatantly fake RRPs.

There is a Chinese watch maker behind the brand "Thomas Earnshaw",
capitalising on the London watchmaker who was a pioneer in the field centuries
ago. They claim their full RRP is somewhere in the region of £600 for one of
their automatics. I don't think they've ever sold one for that price - they
sell them in the £150 range on the basis it's "so cheap!" to so many consumer.

They're not awful watches, but really, they're £50 automatics, and should be
sold as such. By insisting that they are £600 watches, and the constantly
offering deep discounting, they are basically playing games with the consumer
and almost tricking them into paying 3x their true worth.

If you're not that educated about automatic watches, you're not sure what the
difference is between movements and which ones are worth money and which are
not, it's hard to not be hoodwinked.

I think for a while certain PC and laptop manufacturers at the lower end of
the OEM market played the same games, especially on bulk account deals going
into education and healthcare markets, especially in the UK. Go look inside a
Viglen or RM machine and tell me that they are worth the list price. They
aren't, but it looks good on paper when somebody "negotiates them down because
of the size of the order".

~~~
sosuke
Invictafication is a word I've seen used to describe this as well. Invicta
watches are at a constant 80% to 95% off retail!

~~~
bluedino
Far worse are Stauer and Daniel Stieger, you can see their cheesy ads in
magazines, comparing their watches to the name brands and sale prices of $69
USD with a retail of $499

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speeder
I'm from Brazil, and the government is worried that the problem here is even
worse, for example the first year Dell made a brazilian black friday sale, I
bought a computer discounted from 4900 to 4300, but I had to cancel the order
the next Tuesday after a personal problem. The non-sale price was from 4250 to
4050... so Dell "sale" in Brazil meant bumping the actual price from 4050 to
4300 and them claiming it was a yuge discount from 4900, a price they never
practiced.

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MichaelBurge
If I'm willing to pay $40 for a coffee maker, it doesn't really matter what
other people are paying. My value judgment of the coffee maker is purely
internal: Either it's worth it or it isn't. As long as the device performs to
specification, I haven't actually been defrauded. I did have some greasy
marketer or 'data scientist' grope around in my lizard brain, but that's to be
expected. There's nothing wrong with running a search to see if anyone has a
cheaper one, but this should be done after you've decided its objective value
to you and not before.

Same reason you don't buy a house by comparing its list price to similar local
sales, or trending house prices. That kind of thinking is how people go broke.

Here's some other strings marketers like to pull:

* Only 1 left in stock

* Only 12 hours left on this sale(possibly with a countdown timer visibly ticking down)

* $300 cheaper than our premium model, but has most of the features. What a great deal!

* 5% of your purchase goes towards starving children in Africa

* Buy it in a bundle for a discount.

You know who actually routinely has clever marketing, though? Coca-cola. When
they did their campaign printing common names on all the bottles, I bought
several of them for people I knew. I thought that was a nice touch. No false
urgency or manipulation.

~~~
ryporter
I (and I suspect most others) cannot accurately value a product without points
of comparison. We rely on the market to conduct the price discovery process.
If thousands of people have bought an item on Amazon, and it has many great
reviews (including some that call it a good value for the money, and none that
strike me as fake), then I judge that the price is a good one. There's nothing
morally wrong with introducing a new product with a high list price and a
heavily discounted sale price, but I'm probably not going to purchase it until
I see whether the market will bear that price.

~~~
MichaelBurge
There's a couple techniques for determining the intrinsic value of something
to you:

* Look at the direct labor cost: My last W-2 job was something like $45/hour after taxes. I'd probably work an extra hour to get a coffee maker that'll last about 3 years. This doesn't really help price anything below $1000 or so, since the prices tend to meld together. But I definitely want to quit work 2 weeks earlier, so the entire bottom floor of my house is devoid of furniture(which might sum to $3000).

* Look at opportunity cost: I can live on about $800/month with bills/housing/etc. So $40 is 1.5 days of runway on savings. Would I rather have an extra 1.5 days of time to launch my next project, or would I rather have a coffee maker? It's possible the coffee maker would pay off.

* Look at ROI: Someone bought me a Keurig as a gift, and the K-cups that it uses are ridiculously expensive(something like $1/cup). Buying a coffee maker that uses bulk grounds is cheaper. You can make a spreadsheet comparing the 'status quo', 'buy new coffee maker', and 'attempt to find or make cheaper K-cups' options.

* Look at risk mitigation: Suppose I lose money hiring an unreliable freelancer. Maybe I've lost $1000, and I'm considering buying a Dale Carnegie book for $20. I think the techniques in that book can turn at least 1 in 50 freelancers around, so it pays for itself in expected value on the very next freelancer I hire. Or maybe my site went down the other week and I lost $15000 and I'm considering spending $500 in dev time to go bug-hunting in that area: It pays for itself if I estimate at least 3% probability of finding another bug of similar magnitude.

Similarly, I wanted a 3rd new monitor to expand on my 8-year old dual-
monitors. I estimated its value at $500, and ended up buying whatever was the
best quality monitor I could get for $500. I think it was listed as half-off
on Newegg.

It's worth paying someone $20 every month or so to clean the grass around my
sidewalk, if you look at what the city would fine you if you don't(risk
mitigation) and looking at wage costs.

A quart of ice cream is probably worth $20 to me, since I rarely eat it except
on somewhat special occasions. I usually pay $4.

Actually, I'm having trouble thinking of a single thing that I can't determine
an intrinsic value for that's worth buying, and which I would need to defer to
the market to decide on a price.

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jeffwilcox
Seeing all the supposed $5,000 LED TVs on Amazing selling for $1,200 is always
a good laugh...

A tangent, but it was a fun conversation recently with the girlfriend in
Hawaii staying at the St. Regis. (Hawaii has a hotel rate 'fairness' law)
Inside the closet there's the legal statement: "Suite maximum daily rate
$9,600". You're never going to see that rate unless either the Olympics come
to town or it's New Year's Eve... "no, we did NOT pay $10k a night" ... "wow,
but that's what this costs!? Wow!" ... "No... no... but how else would you
comply with a maximum rate law?"

~~~
rusanu
In Romania the law requires all retailers to display the maximum price markup
they have. Dutifully every single retailer displays the same notice "This
store practices price markups between 0 and 300%" (over 300% notices exists,
but are rare).

~~~
aidenn0
Wow, 300% is low for maximum markup in the US. Small clothing stores, for
example, have approximately a 1000% markup. I worked at one such store, and
the store only turned a profit in November and December (due to rent being so
high).

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Freestyler_3
I recently bought a new screen, I went online searched for models in my price
range. went over specs etc to find which model I like the most. Then did a
final price search on that monitor. I got it 60 cheaper than the price I got
on the first search. (in this case I bought for €180 and elsewhere it was
listed €240) This is what I usually do when searching for something, if you
look at the specs you don't have to be an expert to find out what is
important, and if it is too confusing then read some bad reviews on the
product you are searching for.

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elcapitan
I really don't understand why consumers care for relative price changes in the
first place, rather than comparing absolute prices. Is price information
really so scarce? My first step is always to check amazon to get at least a
rough estimate on the range of prices for a given product or product category.

~~~
Kenji
I think it is a deeper, subconscious psychological trick. "It's a special
offer and it is limited time, I should get it while I can." Like, appeal to
opportunists, or something? Of course, you're completely right and we rational
people just override this and do not fall for such cheap tricks.

~~~
TheOtherHobbes
It's a standard marketing trick - because it works.

It's why shady online marketing sites always have a "Special discount for
today only!" tag. And - protip - why some automatically offer a 10-20%
discount if you try to bail on the transaction.

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stegosaurus
I've never really considered list price to be relevant because it's not
generally that hard to compare prices via relative means for luxury items.

For example, I know that a standard pack of chocolate digestive biscuits are
50p. Based on that I can figure out whether some fancy cake is worth buying.

This falls apart a bit in some places (is a home really worth 800000x as much
as a chocolate bar?) but generally it works for me.

It does have the effect of reigning in spending which I consider a bonus.

To elaborate a bit - I don't particularly mind spending £2 for something that
could have been gotten for £1.50. I mind spending £2 for something which is
almost identical to a different item that I could get for 20p.

I think this is where many people fall down. Getting an expensive brand of
shampoo at a discount is meaningless if it's still 10 times the cost of
regular.

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xivzgrev
I used to sell chairs online, and this particular vendor had an extremely high
suggested retail price. I couldn't find anywhere that actually sold it for
that price. I don't think it's aspirational like the article suggests, I think
it's to help all of the distributors. If the mfg can change a number and help
everyone downstream increase sales, that's a windfall for them.

That's why it's always important to compare prices. Start at Google not Amazon
:)

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chiph
If you're in the US, go shopping for a pickup truck. Ford, RAM, and Chevy will
all come off the list price (shown on the Monroney Sticker) by $8000 or more
with practically no arm twisting.

Sure, it's the Manufacturer's _Suggested_ Retail Price. But the signal I get
from this is that the vehicle was _never_ worth that much.

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iolothebard
All the musician's online sites do this. It's price anchoring, just like at
JCPenney, etc.

