Originally posted Dec. 10, 2015 at the Georgia State University News Hub, https://newsarchive.gsu.edu/2015/12/10/what-are-you-overpaying-for/.
An inside look at the holiday pricing games traditional retailers are playing to keep up with online competitors.
By Jeremy Craig
Holiday shopping is a fickle game. For consumers looking to get the best bargains at the lowest prices, it’s a fun scavenger hunt to seek out deals.
For nervous CEOs of traditional retailers looking at the bottom line, it’s more like an evening of high-stakes, professional gambling in Vegas. Holiday sales can be the difference between thriving or barely staying afloat—or worse, closing up shop.
Are you overpaying?
When it comes to prices, Lemley said there are two categories you should watch out for during the holiday shopping season: clothing and televisions.
“Clothing may be one of them, particularly if you’re buying nice clothing, party-type clothing,” he said. “You may see some pricing flexibility upward on most of the good stuff.”
With TVs, a small cosmetic change may allow a retailer to charge a higher price for a TV that is, for all intents and purposes, the same as a cheaper set but with a different model number.
For example, Store A might sell a TV for $400, but because Store B has negotiating power with the same manufacturer, it has the same TV produced for Store B’s hundreds of locations—except the frame around the TV might have a different color than the TV at Store A, with different packaging. Store B sells the TV for $600.
“I can make a small cosmetic change on an item, and all of the sudden I have a totally different pricing scheme on it,” Lemley said.
Retailers make the bulk of their profits during the holiday season through February, said Christopher Lemley, director of the Professional Selling and Sales Leadership Program in the J. Mack Robinson College of Business at Georgia State University.
So during those critical months, retailers try to refine their holiday pricing and sales strategy down to a science.
“It’s part science, and part knowing the categories that you’re selling in, the performance of those categories and knowing how your customers are demanding various products,” Lemley said.
Retailers now have large amounts of data to make better pricing decisions.
“Look at Target for example,” Lemley said. “They can look at everything that is purchased, when it is purchased, have a profile of who the customer is, and they’re analyzing that data on an ongoing basis to determine where they can make pricing moves.
“They can do it so well that they have well-informed opinions about what’s going to happen over the next four weeks,” he said.
Prices of items change during the season, but are initially negotiated well in advance with many suppliers, Lemley said. Pricing for merchandise designed to entice shoppers on Thanksgiving weekend is usually nailed down during the summer.
Even so, the pricing game starts getting less predictable after Black Friday.
“The retailers are going to be watching demand, not only on entire categories of items, but on specific items, like a hawk, on the first few days of the four weeks between Thanksgiving and Christmas,” Lemley said.
Retailers will begin adjusting prices downward to try to move items that aren’t selling, he said. By the beginning of the third week of the shopping season between Thanksgiving and Christmas, prices for less popular items can come down swiftly.
But if you’ve been waiting to buy an item that’s been moving fast, you might just find yourself having waited too long.
“On items that are moving exceedingly well, they may try a little bit of a price increase to recover a bit of their margins,” Lemley said. “They’ll let prices float back up, as long as the retailer hasn’t negotiated a deal with a vendor and has already set advertising around that pricing.”
Meanwhile, just as retailers try to use computing power to turn a profit, consumers are using the power of their smartphones to negotiate the best prices, especially since some online retailers sell items for much less than a traditional brick-and-mortar store.
“They may now go and collect information on the Internet to buy something, take that information into Best Buy, for example, and say, ‘Hey, I want a hi-def TV, and I see that you’ve got it,’” Lemley said. “‘Here are the prices I’ve seen online. Are you going to match them?’”
Despite lower online prices and consumers armed with more information, Lemley said that brick-and-mortar outlets won’t go away any time soon.
For one thing, not everybody in the U.S., even in 2015, has access to the Internet at home, knows how to use the Web or has interest in doing so, he said.
And, after all, there’s the thrill of the hunt—something a couple of clicks on Amazon or Overstock.com can’t match.
“People love shopping, and they love shopping in person,” Lemley said.