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Don’t Fall For These 5 Pricing Tricks

The Science Behind the Number


Never underestimate the lengths retailers will go to to get you to spend more. Everything from product placement to music to scent can subconsciously coerce you into opening your wallet. But perhaps the most pervasive and effective strategy retailers employ in their quest for you to spend as much as possible is pricing. They know even savvy consumers often don’t understand the complexities of retail pricing, and they’ve done their Psych 101 homework in an effort to obtain maximum mind control over their customers.

It’s time to break the shopping spell and take back the power. Here are five retail pricing strategies that are currently working against your pocketbook — and some clever antidotes to combat them.

Charm Pricing


One of the most omnipresent strategies is to price items just “below price,” a tactic sometimes referred to as “charm pricing.” Items that end in .99 or .95 sell significantly more than items priced only a few cents higher, attributable to what’s known as the “left-digit effect,” meaning we pay most attention to the number to the left of the decimal point. This strategy also makes us cumulatively purchase more: In a study in the Journal of Consumer Research, researchers found that individuals estimated they could buy more items with their $73 when presented with items that ended in .99 — so we mentally round down, while racking up a higher bill than we mentally tallied.

Price check: Download the Shopper Tally app (of course, priced at $0.99) to enter the price of your items while you shop. Having a real time reality check of the bill you’re accruing makes you more likely to discriminate while you shop, diminishing checkout line sticker shock.

Markup Pricing


We know items are not sold at cost, but we often underestimate just how significantly they’re marked up. Also known as “cost-plus pricing,” mark-up pricing adds a profit margin onto the cost of goods, taking into account operating expenses and what the market is willing to pay. There’s also attention paid to the fact that most items will eventually be discounted, so extra profit margin may be added (making future “discounts” less of a deal). The average gross profit margin for the fashion industry averages around 35 percent, with some items going much higher: for retailers like H&M and Zara, margins can be as high as 50 percent, and for jewelry and other luxury items, they are often more than 50 percent.

Price check: Traditional stores mark up an item upwards of eight times before it reaches a consumer, but online retail startups like Everlane are practicing “radical transparency” when it comes to pricing (and sustainable manufacturing), in an effort to change that statistic.

High-Low Pricing


Sometimes a deal really is too good to be true. Retailers often practice “high-low pricing,” reducing prices of certain items (and lowering their profit margins on those items) to psychologically thrill customers who are excited to get a “deal.” These items often rotate, in an effort to attract the widest possible customer base. This experience also creates a favorable opinion of the store or brand and makes consumers more likely to return. Customer retention and loyalty is worth those extra percentage points on a few items.

But they’re not really sacrificing anything: While some prices are shockingly low, others are adjusted to higher than necessary, with the hope that consumers will purchase at least a few of these over-priced items and that, overall, the net profits will increase.

Price check: Timing is everything, particularly when it comes to getting the best discounts. ShopItToMe.com tracks retails purchases from over 100 online retailers. According to their data, post-holiday sales in January are best for fall/winter clothing, and Memorial Day sales are best for spring/summer clothing — and, even more specifically, Wednesdays are the day to buy shoes, while Sundays are best for buying swimsuits.

Dynamic Pricing


We know good prices come and go, but we often underestimate just how rapidly a deal may evaporate. Thanks to the magical powers of the Internet, it’s easy for online retailers to update prices instantly (a much simpler feat than the manual labor required to changes prices in stores). And what triggers these changes may bring out your inner Edward Snowden: Market demand comes into play, but some retailers also change their prices based on your buying history and other personal information they gather from your electronic data. This sort of price discrimination is built on the belief that certain individuals are more likely to pay top dollar for certain items than others. Turns out, when it comes to online prices, you should take it personally.

Price check: Don’t fret — there are several things you can do to out-smart the technology keeping tabs on you. You can trick the site by changing your IP address (via a VPN or a proxy server). Or you can check prices using two different computers or browsers to compare prices. And if you like an online price, you may want to purchase it sooner than later.

Prestige Pricing


Think that, if given a choice, you would always choose the lower priced item? Not always. Some items are marked higher not because there’s a scarcity or because the manufacturing costs are high, but rather for psychological effect. If perfume or jewelry is priced too low, we may wonder what’s wrong with it or perceive it as less desirable, for example. In our minds, some items correlate with status, encouraging many consumers to blindly pay for a brand, without ever investigating the validity of its pricing.

Creating the right environment for a luxurious customer experience and even celebrity endorsements support this inflated sense of value. Prestige pricing forgoes the pennies and decimal places — .99 symbolizes a bargain — and the appeal of these items is that they’re luxurious, meaning the “bargain pricing” strategy has the reverse effect on these items.

Price check: Consider downloading RedLaser. It clips coupons and compares prices both online and in brick-and-mortar stores (and is smart enough to know which stores are geographically most convenient), while also organizing loyalty cards, saving favorites, and assisting you straight through to purchase and pickup. Best of all: It’s free.

Anna Akbari, Ph.D. is a sociologist, entrepreneur, and the "thinking person's stylist." She is the founder of Sociology of Style, which takes an intelligent look at image and culture-related issues and offers holistic image consulting and life coaching services. Find out more and follow her on Twitter.

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