Is that deep discount on Black Friday actually a deal?

Taken from Tuesday’s edition of The Tom and Curley Show.

John Curley says…

They say the average American that’s going out to shop this year might spend about $650. There’s new research out there talking about what happens in the store and what the retailers do to you to get you to bite.

A Wall Street Journal report this week outlined the practice of retailers pricing a product at a level that they will not lose profit even when a discount is applied.

“The common assumption is that retailers stock up on goods and then mark down the ones that don’t sell, taking a hit to their profits. But that isn’t typically how it plays out. Instead, big retailers work backward with their suppliers to set starting prices that, after all the markdowns, will yield the profit margins they want,” says the Wall Street Journal report.

Now, Ron Johnson, an executive from Apple, left Apple and he went to JCPenney, and Ron Johnson said you know what, I’m done with this whole nonsense of markdowns. Let’s stop doing that to the customer. The customer doesn’t need us to play this game. They understand what is happening. It says it’s $90, we mark it down to $63, and then we mark it down again and we tell everybody it’s 70 percent off. Let’s stop it. This is dumb. It’s a dumb game. Customers don’t need us to play this game anymore. Let’s just simply discount the stuff and have the price there.

Guess where Ron Johnson is now? He’s looking for a job. JCPenney’s changes were a miserable, miserable failure because the customers actually want this. They want to play this game because it makes them feel good.

“Yeah. If I paid $43 for a sweater I thought was $90, I’d feel better than if I’m paying $43 for a $43 sweater, even though it’s the same sweater,” says co-host Tom Tangney.

That’s the main thing, you want to feel like you got a deal. They say in this lackluster economy, people want to feel like they got deals. It’s all about getting the deals to make you feel better.

The hardest part for retailers apparently is finding the price point that the customer really thinks that the product is worth. They always struggle to find out what is the true suggested retail price of something so somebody can then start marking it down from there.

I know that at auctions, I’ve started doing this as a kind of psychological test. Say I’m auctioning off a Holland America Cruise for two. I start by saying the value of the item. It’s a $3,900 value two-person cruise from Holland America. So you start the bidding at $500, and it stalls at about $1,700. Then I always say the value is $3,900. You are at $1,500; you’re lower than half the price and $3,900 is the value.

You always have to keep hammering away the anchor price on them for them to start to realize they’re saving money. You’re always reminding them of the value, so that’s what they’re going to do to you this Friday when you shop.

They’re going to constantly show you the value and they’re going to show you what they’ve done for you in cutting prices in order for you to buy the thing. But remember, this is just retailers keeping up this sale dance with us, because at least according to what shoppers indicated to JCPenney, apparently we want it.

Taken from Tuesday’s edition of The Tom and Curley Show.