How do Department Stores Use Pricing to Drive Urgency?

How do Department Stores Use Pricing to Drive Urgency?

Some department stores use pricing to drive you to buy now, in other words-urgency.  They have lots of short single day, weekend or three day sales.  These sales are generally not on everything, but a lot of items are included.  Most often, they send out online coupons that are good for a specific date range.  Since these sales are so frequent, they have to build into the tagged price for each item enough margin to still make money when the sale price or coupon is applied.  Consumers are smart.  So if the original price is too high the strategy fails.  Since everyone likes a bargain, the strategy drives people in to buy now.  This is important because if customers can put off buying, they sometimes never get around to making the purchase.  The strategy also works because consumers can tabulate how much money they “Saved” by adding up the discounted dollars.  They tell their spouses and friends which validates how smart they are.

In this day and age, it is really easy to price shop.  So you can go to a store, find something you like and then compare the store price with other stores or online retailers.  If you can get it online at a significantly lower price, many consumers will order it online while they are still in the store.  So to combat this, many department stores have a lot of private label merchandise, especially clothing.  You can’t directly compare something that only one store carries.  So as long as the price after the use of a coupon feels fair to the customer, they buy.  Since the coupon is time limited, the use of coupons drives urgency.

There are problems with this strategy.  One is that if the store runs their whole approach around frequent coupons, customers become trained not to shop unless they have a coupon.  So if too high a percentage of goods are sold with a coupon, the average margin may not be enough to make a profit.  I call this over-discounting, a topic I will cover in another post.

For more information on using pricing to drive customer behavior, click on this link.

Bryan B Mason

Apollo Consulting Group, Providence, RI

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