Recently, four large retail stores, Macy’s, JCPenny, Kohl’s, and Sears, have come under fire for marking up items before putting them on sale.  The lawsuits they face claim that their pricing tactics are deceptive and mislead consumers on the true savings achieved.

For several months, the Los Angeles city attorney’s office monitored sale prices at the retailers.  Several items were identified to have been advertised as having a certain original price and on sale for a lower price.  The problem was those items had never been sold at their original prices.  Ever.  For example, a pair of shorts was originally tagged as being $7.  The next week the tags were changed to indicate a price of $14 and a new sign on the rack advertised 50% off, netting the same price of $7 in the end.   The shorts were never “worth” $14 and they would never be sold for $14.  But, the consumer who purchased them “on sale” felt they were saving 50%.

I’ll admit that I’ve fallen into that trap a time or two (oh, okay, many times!). After a shopping outing, I take my receipt home and proudly show my husband the savings. Somehow I use my savings to justify whatever I just spent. But are my true savings really that $150 circled in red on my receipt, or is it more likely close to maybe $50? Or, as in the case of those shorts, did I really save anything at all?

Now, these companies are not the only ones capable of, or currently utilizing, this type of pricing tactic. There’s a very good possibility that some of your vendors and suppliers are doing the same thing to you, with or without you even realizing it.

Imagine a potential new supplier saying, “The price was going to be $100 per unit, but I fought for you with my boss and I secured a price of $50 a unit if you can write a PO today.”

Does that sound like an easy win and cause you to immediately sign on the dotted line?

Do you excitedly tell your boss, “I achieved a 50% cost avoidance!”

Or, does it cause you to pause and question if that’s an improvement in their price at all?  Is it too good to be true?

That supplier is probably hoping that the promise of a 50% price reduction will keep you from asking for more.   Their absolutely lowest price might be $10 less, $20 less, who knows!  And, even if you do ask for more they can always say, “No I can’t do any better, I already reduced my price by half.”  And you may be apt to accept that, because it does sound like they are giving you one heck of a deal.

Without knowing what the item should truly, or reasonably, cost, you don’t have all of the information necessary to decide if that offer is really a fair price or not.

So, how can you avoid falling for these deceptive tactics? As I alluded to above, the key is knowledge. Do your research; utilize should-cost models and other sources of verifiable information. Be prepared and know what a reasonable price should be. And, always remind yourself not to be blinded by the promise of big price reductions no matter how good they seem.

 

 

Charles Dominick, SPSM, SPSM2, SPSM3

Charles Dominick, SPSM, SPSM2, SPSM3 is the Founder of the Next Level Purchasing Association. Charles is also the Co-Author of "The Procurement Game Plan: Winning Strategies & Techniques For Supply Management Professionals."

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