Traditional retailers utilize promotional, fake, and anchored prices
To better understand J.C. Penney’s shortcomings, let’s first examine how a typical retail pricing strategy breaks down. For years, retailers, no matter what time of day or year, have offered sales and advertisements that lure bargain-drooling customers in the doors. Retailers use a combination of promotional pricing, fake pricing, and price anchoring to form a comprehensive psychological pricing strategy that creates a pricing trigger that minimizes the sales cycle significantly. For instance, when faced with a 60% off, 12 hour only coupon that reduces a $1,200 winter coat to $400, you can’t help but rush to the store to buy it, even if it is 95 degrees out.
A few things are happening here. For one, the $1200 acts as an anchor price that psychologically forces you to realize you’re getting an enormous deal at the $400 price point. Plus, the promotion limiting the time the offer is available forces you into an impulse. In actuality, you’re not that special, because these sales never truly end. Almost no one ever pays full price. In fact, studies show that people are much more inclined to pay $25 for an item valued at $50, than paying for the same item without a sale at $25. It’s all about the “price framing” of a product that creates a perceived value, which all leads to the excitement of getting a good deal
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