Please stop the “Sale, Sale, Sale”

May 26, 2015 / 0 Comment
July 18, 2013

This article appeared in The Storyboard FirstPost epaper on July 17, 2013. For the original article, please click here.

The website, Burrp! says there are 85 sale events happening in Mumbai. Fifty in Pune. Around 30 each in the other major metros.  How many have you been to?

I am not sure about the accuracy of the above data. I am inclined to believe that this is a case of gross under reporting. There are probably many more. But the list did help me analyze the various offers and come up with some thoughts on what retailers ought to be doing.

Lets start with the name. A vast majority of the sales call themselves the “End of season sale”. (Err, what season would that be?) Some are more explicit and claim they are a “Monsoon sale”. A few are called “Clearance Sale”, though it is not clear what they are clearing since some insist that they have “added fresh stocks”.

Lets move on to the thing that really matters. The price. This year, the lucky number is 70. A large number of sales are “up to 70% off”. This “up to” sounds like an admission of guilt and so there are several retailers who prefer to make a more genuine sounding offer. These are the people who offer “flat” discounts on everything in their stores. Of course, the discount percentages have to be lower – 30 to 50 seemed to be the preferred range.

In all this cacophony, is there any innovation happening? Is it possible to create some differentiation so that the retail brand gets some benefit? Or is “Sale, Sale, Sale” so perfect that it cannot be improved upon?

Well, to be fair there are some innovations taking place. A few brands are offering a two step discount for their loyal customers. So they offer 40% discount to everyone and an additional 10% if you are a member of their loyalty program. Most people I spoke to, thought that they were thus getting a 50% discount in total. Actually that is not true. They are getting a 46% discount, but most people can’t do that math. (Basically they apply the second discount to the net price – so a ₹100 product becomes ₹60 after the first discount and then ₹54 after the second). This two step discount is widely practiced in the USA. People always add up the two numbers and they think they are getting more than they actually are.

Given that people tend to add up the two numbers, it is in the interest of the retailer to increase the value of the second discount. So if you offer a two step discount of 40% followed by 20%, people will think they are getting 60% off, whereas they are actually getting only a 52% discount.

Sounds manipulative, but it is no more so than when retailers increase the ticket price of the item and then mark it down for the sale. Even consumers who suspect this is what is happening, still go ahead and fall for the lure of the four letter word, Sale.

If you really want to be totally fair to consumers and still make the highest amount of profit, retailers should offer a price guarantee. This basically says that if the price of that particular product ever drops (either in their own store or in a competing store), then they will refund the difference. This takes a great weight off the minds of shoppers. It is now in their interest to buy immediately. Also there is no competitive price cutting between retailers and so all of them make more money.

In a recent article in the Harvard Business Review, two professors from NorthWestern University, Sandeep Baliga and Jeff Ely, showed that this kind of price guarantee works well for the retailers and the customers even when the former needs to make some refunds. They call it ‘Purple Pricing’. The idea seems to work particularly well when the item has limited supply e.g. seats in an airplane. Currently passengers feel dissatisfied because one may end up paying much more than another on the same flight. On the other hand, airlines may lose money by pricing their tickets too low. The Purple Pricing model solves both problems. Currently the key challenge in implementing this scheme is that the payment mechanisms from airlines are not set up to offer refunds easily. Once the software issues get sorted out, both airlines and passengers will benefit.

There are probably several other innovations taking place around the world. Please do write in if you know of them. Clearly there is a lot more to be said than just “Sale, Sale, Sale”.


Leave a comment

You must be Logged in to post comment.