Mark it up, price it down

Sale standeeMark it up and price it down.

That retail practice is alive and well. Thriving actually, according to an article in today’s Wall Street Journal (The Dirty Secret of Black Friday ‘Discounts’) that’s a great read for anyone planning to do some shopping Thanksgiving weekend.

It’s an interesting article about common retail pricing strategies, including how most deals are actually “a carefully engineered illusion.”

It also goes a long way in explaining why the Banana Republic near my house has a “Save 30%” or “Save 40% today!” standee by the front door seemingly every weekend.

This data really jumped out at me:

“The number of deals offered by 31 major department store and apparel retailers increased 63% between 2009 to 2012, and the average discount jumped to 36% from 25%, according to Savings.com, a website that tracks online coupons.

Over the same period, the gross margins of the same retailers—the difference between what they paid for goods and the price at which they sold them—were flat at 27.9%, according to FactSet. The holidays barely made a dent, with margins dipping to 27.8% in the fourth quarter of 2012 from 28% in the third quarter of that year.”

Not to take all the fun out of holiday shopping, but the article highlights the relevance of trying to determine true bargains (e.g., loss leader discounts) from illusory deals.

Shoppers are already wary of paying full retail prices. After reading this article, you may find yourself even more so.

Speaking of retail practices and holiday shopping, I’d like to share a book recommendation: Paco Underhill’s Why We Buy: The Science of Shopping.  It’s one of my favorites. If you or someone on your gift list enjoys marketing and/or business books, it’s a well-written and interesting look at shopping that’s based on his research as a retail consultant.

Do you have any favorite marketing books to recommend? It’d be great to hear. Please share in the comments or via the contact form. (Or just send it to me as a holiday gift. Haha, just kidding).

Surprise is the Spice of Language

I had some fun highlighting an absurdity in my previous post:  the idea that longevity would be classified as a negative. Obviously, for people with a functioning survival instinct — i.e., most us — it’s a wish not a risk.

But there was a good marketing-related reminder in the story.

As mentioned, I was skimming a pamphlet about retirement planning that was full of routine information. I was just about to put it down but at the last second the term “longevity risk” and its inherent ridiculousness grasped my attention.

“Huh? What risk?”

Instead of putting it down I kept reading and, what’s more, I haven’t forgotten the underlying point of what I subsequently read.

The reminder in this is simple but powerful.

The human brain is usually a step ahead, filling in what it expects to hear or read. And as everyone knows, predictable is boring.

We don’t pay much attention to the predictable — not in ads, not in copy, and not in spoken words.

I’m struck by the impact an unusual turn of phrase can have during a meeting. It’s amazing how even just a little unexpected and/or humorous wording can grab an otherwise drifting audience. And if people laugh, all the better — others who were secretly peeking at their mobile phones look up.

There’s an interesting passage about this topic in the book Persuasive Online Copywriting called “Surprising Boca.”  It includes this explanation:

“In 1861 Paul Broca identified the section of the brain involved in speech production…The brain does its job by learning the rules about how we talk and then, based on those rules, learns to skip over the parts of what we hear that we expect to encounter.”

An element of surprise doesn’t have to be intentional to work; for example, the almost-discarded retirement-planning pamphlet.

Or, some of my best staff-meeting humor:  often unintentional, but always effective.

The Contrast Principle

The contrast principle (or contrast effect) says that when you experience two similar things in succession, your perception of the second is influenced by the first.

For example, when you pick up a heavy box and then a light one, the second one will feel lighter than it really is. Or to quote a colorful example from Robert Cialdini’s excellent book, Influence: The Psychology of Persuasion

If we are talking to a beautiful woman at a cocktail party and are then joined by an unattractive one, the second woman will strike us as less attractive than she actually is.”

(Sorry guys, the same holds true when women look at us.)

So why is contrast principle as the name of this blog?

Foremost because I find it to be an interesting insight into the way we perceive and experience the world. It’s a good example of how our perceptions are shaped and influenced by external experiences in ways we’re often only vaguely—or not at all—aware of.

I also like it for the title because my intention is to primarily write about marketing-related topics, and the contrast principle is applied in salesmanship. When you’re quoted a high price and then a lower one, the second seems lower than it really is.

An observation of this principle in the wild:  Costco’s watch case.

At my local Costco, the case always contains a handful of watches in the $5,000 – $10,000 price range. These watches are placed at the side of the display case near the main aisle, so they’re likely the first watches most consumers see as they approach the case.

Between their location and appearance, you can’t help but look at the $5,000, $6,000+ watches.

The $950 Tag Heuer you see two steps away looks surprisingly inexpensive. “I can afford that,” I always hear myself thinking. And the $89 sports watch? Why not pick one up for weekend hikes and working out — they’re almost giving them away.

I doubt there are many impulse purchases of the small selection of high-end watches, but my guess is that their main value to Costco lies in the comparison.

My local Costco store isn’t an anomaly — I saw the same set-up in other branches, including one in another state.

Lastly in terms of choosing “The Contrast Principle” for the blog name, I just like how it sounds.

If you read a post on this blog and then a post on another blog directly thereafter, hopefully the quality of my post doesn’t make the other one seem better than it really is. But if so, it’d be the contract principle in action, in both name and effect.