We often see hundreds of products on sale at once in a store, yet rarely stop to think about why stores do this. If you think deeply, this promotional tactic seems puzzling. A big sale is meant to lower the average price of goods in the store; why not just lower prices by 5% all year instead of having two 30% off sales? Price changes cause trouble for stores as they need to update price tags and ads. So why do they bother to mess with prices? One explanation is that big sales are an effective way to position themselves. Some customers take time to browse and compare before buying, while others are the opposite. So for stores, it's best to use high prices to hook loyal (or lazy) customers, and use low prices to attract bargain hunters. Mid-range prices are useless: not high enough to make more money from loyal customers, and not low enough to attract bargain hunters. But that's not the whole story. Because if prices remained stable, even the least price-sensitive customers would know where to buy cheap goods. So stores can't stick to high or low prices; they should jump between the two extremes. A common scenario is two supermarkets competing for the same customers. If one is more expensive than the other on most items, the former will struggle to keep its business. So although on average their prices are similar, neither store keeps prices constant. This way, both stores can distinguish bargain hunters from customers who need specific items, like those who shop with a recipe. Bargain hunters will pick any discounted item and make the most of it; recipe shoppers go to the supermarket to buy specific items and are less price-sensitive. The price positioning strategy works because supermarket specials are always changing, and it's too much trouble for customers to visit two stores in one trip. If customers could predict which items would be on sale, they could plan their recipes ahead and even choose the right store to buy items at their cheapest. In fact, a more accurate and revealing way to think about "big sales" is to reverse the logic: consider the regular price as a premium over the sale price, rather than viewing the sale price as a discount from the regular price. For supermarkets, it's more profitable to raise prices unexpectedly (compared to sale prices) than to raise them in a predictable way. Customers find it hard to bypass unexpected price increases—they often don't even notice when low-value items go up—but they can easily avoid predictable increases. Next time you're at the supermarket, try to notice this price confusion. Have you noticed that packaged fresh peppers often cost 10 times more than loose peppers? Supermarkets do this because customers usually buy small quantities, so they don't pay attention to whether it's 4 cents or 40 cents. Randomly tripling the price of a vegetable is also a common trick: customers who notice the difference will buy other vegetables this week, while those who don't notice get caught. Once, while looking for chips, I discovered a supermarket trick. My favorite spicy chips were on the top shelf, and a few feet below were other flavors, all the same size. The chips on the top shelf were 25% more expensive. However, even though products with similar placement and size had different prices, many customers didn't compare. They cared more about having a snack. Of course, for some, taste matters. Some notice the spicy chips are pricier but grudgingly pay up; others prefer other flavors and feel lucky because their favorite flavor happens to be cheaper. But this is a common phenomenon in supermarkets: They have many similar (or not-so-similar) substitutes, some cheap, some expensive, and pricing is quite random. So customers can only get bargains if they pay close attention, remember, and compare prices. If you want to beat supermarkets in this battle, careful observation and analysis are your best weapons. And if you're not willing to put in the effort, it's hard to save money. Source: Xiaojikuaipao excerpted from "The Undercover Economist" The 3rd (CFIC) China FMCG + Internet Conference will be held in Chongqing in November 2017. The conference will closely focus on the theme "New Forces, New Ecology," inviting 1000+ distributors, 500+ brand owners, 200+ B2B platform founders, and 100+ investment and financing institutions to explore a new chapter of cross-industry integration! Core topics of this conference:
How can the FMCG industry leverage B2B to achieve new growth opportunities?
How should the new supply chain behind new retail be built?
How can intra-city logistics help B2B achieve leapfrog development?
Highlights of this conference:
The industry's first "2017 China FMCG B2B Industry Competitiveness White Paper"
Case sharing of excellent transforming distributors
Upgraded conference + exhibition, Hall 6 Internet Technology Exhibition strengthens networking
Alibaba Retail Link, Puhua Finance, Eternal Asia Supply Chain, Best Store Plus, Yijiupai, Hdwell: leaders from the most well-known companies in various fields will give speeches and share pioneering views.
November 8-9, 2017 Xinyue Hall, Chongqing Yuelai International Conference Center Registration is now open. Long press the QR code below or click "Read Original" to register. Add friend with note "Conference Registration" Click the links below to review the highlights of the 1st and 2nd FMCG + Internet Conferences: 2016 "FMCG + Internet" Summit Forum -END-