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How list prices are duping customers into false deals

Inflated list prices help retailers advertise discounts that may not be as impressive as they appear.

Everyone likes to get a good deal. But how do you really know that a discount is actually a discount?

Over the past year, the validity of list prices has come under more scrutiny, with several retailers getting sued for using inflated original prices to make their advertised deals look better.

A list price is the suggested retail price from the manufacturer. While it’s rarely what you’ll end up paying, it’s a starting point that lets consumers know if they’re getting a good deal.

According to consumer psychologist Kit Yarrow, the list price holds a lot of power. “We don’t inherently know how much something should cost, we just look at the list price as a way to understand that,” she told Yahoo Finance. “Then if it’s reduced, we assume we aren’t being taken advantage of.”

The problem is that different retailers will often present an assortment of list prices for the same product, boasting deep discounts that may not be as deep as they appear.

For instance, this CharBroil Gas Grill is on sale for $186.99 on Wayfair with an original list price of $361.70. The exact same grill is advertised for $190.99 on Amazon (AMZN), with an original list price of $199.99. Ace Hardware has a list price of $219.99, while the original Charbroil website lists the grill for $199.99.

This side-by-side comparison shows the difference in list prices for the same grill on Wayfair (top) and Amazon (bottom).

Sure, the discounted prices are in the same range, but the list prices might as well be on different planets. As a consumer, we don’t know if we’re getting this grill for 48% off as Wayfair states, or a meager 5% off as Amazon suggests.

And the issue goes beyond grills. In December, a shopper in California and another in Florida filed a class-action suit against Macy’s (M) for advertising misleading list prices. According to the lawsuit, Macy’s consistently misrepresented its pricing, “offering steep discounts off of fabricated, arbitrary, and false former or purported original, regular or ‘compare at’ prices.”

Macy’s might be getting the attention now, but this strategy -- also known as price anchoring -- has been used for decades to lower the perceived price of an item. J.C.Penney (JCP) and Kohl’s (KSS) both faced similar lawsuits in 2015. Overstock was sued in 2010 for allegedly posting false and misleading prices of products and fined $6.8 million. The company has since filed an appeal in the decision.

“It’s become a trend to never pay full price, so retailers have to give consumers a reason to believe they are getting a good deal,” says Yarrow, author of “Decoding the Consumer Mind.“People are looking for permission to buy, and that contrast between the list price and sale price is often all that people need.”

While places like outlet malls have blatantly used this pricing structure for years, the prevalence of online shopping has brought the use of inflated list prices front and center.

And you might not ever know what the real list price of that stroller or power drill or gas grill is.

Amazon, for instance, leaves plenty of room for interpretation for list prices. The website states that the list price represents the full retail price suggested by the manufacturer or supplier. However, it goes on to say that the list price is “a comparative price estimate and may or may not represent the prevailing price in every area on any particular day.”

Simply put, people shop online for convenience. In addition to accessing a wider inventory, customers are also able to search for an item and purchase it within seconds. If a retailer is advertising a 50% off sale, you might be more likely just to click “buy” without researching what that price really means.

It might be difficult to change the way retailers advertise pricing, but Yarrow does offer some suggestions for customers who want to change their own behavior.

“We no longer calculate the value of a product to us. We look for a bargain first, and use that deal as a way to ensure that we aren’t being duped,” says Yarrow. “Spend less time determining the value of a product based on the consumer deals. Instead, think of what it is, what it’s worth to you, and then buy it or don’t.”

In other words, don’t be pressured into buying something just because it’s on sale.

Because the reality is, it might not be.

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