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Extreme Bargain or Extreme Stupidity? How Did We Become Hooked On Pretend Pricing?

Why do we continue to cling to the idea that to justify a purchase, it must be an EXTREME BARGAIN? Are we truly brilliant because we can buy something at 70% off?

Or are we just plain stupid because the very first day it was displayed it was ALREADY 50% off? Suggested retail price seems to be nothing more than a PRETEND PRICE these days.

Do you think that manufacturers have inflated pricing to allow for this fact: We have decided buying things can only be justified if the thing is ON SALE? AN EXTREME BARGAIN?

When did everything become FOREVER ON SALE?

These thoughts occurred to me yesterday when I indulged in a guilty pleasure. I went shopping for sport.

"Guilty" because this is the kind of shopping we banned in 2008. We all locked our wallets, and threw away the key. If the media didn't convince us to do this, our bank accounts did.

"For sport" because this is when you buy things you didn't know you needed until you went shopping. Retailers love sport shoppers, for obvious reasons.

Apparently the great spending freeze of 2008 was the reason that, yesterday, 2 full weekends beyond Christmas, the stores were still stuffed full of forlorn looking Christmas items and unsold winter items in every possible color and size. Clearly marked pretend prices on attached tags were ridiculously high.

But what were the real prices? There were only 2: Give-away, and nearly give-away. Expressed only by various percentages off the PRETEND PRICES, rebates, and other incentives.

Actually trying to come up with a real price on anything was nearly impossible. Clearly the store found it impossible as well. Huge signs hung over racks of clothes and displays of merchandise that read "70% OFF"or "65% OFF", early bird special, use your coupon, ask about free ski lift tickets!

Am I being unreasonable because I do not want to think so hard when I am shopping for sport?

Math which would go something like this: figure out a 60% discount off of the pretend price, minus another 10% with my coupon, but only if the sweater is not a designer sweater. And don't forget the 5% discount because of our early bird special, and 2 free lift tickets if you spend over $100 in the store today, 10% more if you open a credit card today.

It briefly crossed my mind that if the store calculated all of these discounts, they would then pay me to take the sweater away. That I shouldn't need to bring my mortgage calculator just to buy a leftover sweater.

But I am 3 aisles beyond that sweater, and already thinking about where to have lunch.

So much for an impulse purchase.

Written by Janet Guilbault, Mortgage Lending Expert Based Out of the San Francisco Bay Area

Posted by Janet Guilbault California Mortgage Banker/Broker on 01/05/2009 04:27 PM

Comments (24)

Deflation in the Mortgage / Finance Channel

monday musings, declining values, economic meltdown, deflation, 2009

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24 Comments on Extreme Bargain or Extreme Stupidity? How Did We Become Hooked On Pretend Pricing?

JAN

Janet~

Another post that inspires...and another reason why I subscribe to your BLOG. Thanks for your intelligence and professionalism.

Point well taken. We can relate the same thing to real estate pricing, don't you think? ~Pat

I primarily do mortgages and people always want to know the deal or rate. I'm amazed that they get pissed off when I tell them it depends, but they accept the fact that stuff at Kohl's is cheaper before noon.

Hi Janet, Bargain Shopping really can be misleading! I was once at a major "high-end"department store with a big name that is anchored at the South Center Mall just South of Seattle, well, they closed sooner than I expected... and were preparing for a big weekend sale and we actually got locked in the store and couldnt exit through the main mall. To make a long story short, as we were escorted and let out of another exit...and while moving through the store...we actually saw a massive "restocking"... employees removing the items off of the shelves, racks, and displays and replacing them with what I thought was substandard items. This was "the big" sale of the year. I was shocked!

JAN

And just how do you think that mindset has permeated the RE market?

Sport shopping can be really fun, especially if you live in the bay area and have lots of options.

Thank you for this post!

It'sexactly what my mother and I were thinking and commenting on when we ventured to the Mall a few weeks ago. I'm not much of a shopper and the only way we dealt with the "what does this cost anyway?" question was to place it at the scanner. Way too much work for something I don't need anyway.

It's sad though that it has infected the way people think about homes. They say "let us know if you see a 'deal'" when the real deal could be a home that was just listed at the right price, not the pretend price! Or, how about finding a home that is right for them and then negotiating to the "right price"? After all, a sweater can be put aside or even regifted if its purchase was one of "it's such a good deal I have to buy it!" but a house is a home and everyone has to have somewhere to live. The purchase of a home involves a bit more than the right price.

Janet,

Stores fudge their prices all the time. About 6 years ago the Kmart in Waco closed and had a going out of business sale. Their 50 to 70 % store closing prices were higher than their regular prices on the same item had been the week before!

Janet...so true! I recently got a 30% off coupon from a major retailer for their catalog, for anything FULL PRICE. Since I hadn't shopped that catalog in some time, I decided to take a look for items to add to my staging inventory. I couldn't find anything that wasn't already ON SALE, so to speak.

But they accomplished the task of getting me to look at their catalog. I generally avoid the retailers that do this type of pricing and some of them could be my favorite stores for sport shopping but I think it's just terribly misleading.

Thanks for putting fact to my thoughts.

The 'DEAL' is all in the eyes of the beholder. Everyone is looking for the deal. Or so they think. Some will jump at the overpriced listing when they get it at half price, but it's no deal. Some will balk at the listing priced 50% below market value, thinking it's not a deal. Conditioned by television and newspaper ads I think.

Hi Janet, The "bargain" that my husband and shake our heads at is the furniture store that is "going out of business." We know some people who own furniture stores and they tell us that it is often just a marketing ploy, often pricing their bargains at more than what an established store charges all the time. They go out of business and reopen a few weeks later under a different name. We know this too from a store that was a few blocks from where we used to live. In the 15 or so years we lived there, that store went out of business 7 or 8 times, but was never closed for more than a month or so and amazingly had the same employees each time!

You are so right Janet. I can't stand to go into a store where everything is half off. It looks so cheesy. That just tells me things were too expensive to begin with. This is the old way of doing retail, the way people in the business were taught in school. Put something on sale and your sales increase. The problem is, consumers know this and wait until prices are marked down to the rock bottom before they buy. That is why most retailers are doomed (see the article in last weeks Financial Times) and stores that have consistent pricing like Wal-Mart and dollar stores are thriving. We can definitely learn from this in real estate. For years people just expected they can get a house lower than the listing price, so they offer lower. If we simply priced houses correctly from the start, and told people that IS the price, maybe buyers wouldn't keep waiting for the bottom to fall out now before making an offer.

This does apply to buyer's thinking about real estate. One client recently said he wouldn't offer full price on a house that he had to admit was listed well below market price, because he should be able to get it for less than asking. I asked him if he'd feel better if we pretended it was listed for the same price as the identical one down the block but he wouldn't bite. He made a lower offer and it sold to one of the five other offerers for more than asking price.

JaneAnn: Thank you! I am thrilled to have you as my subscriber!

Pat: It absolutley is applicable to real estate pricing. I wanted to go there, but the post just got extremely long, so I decided to save this for the next post.

I also wanted to write about how we buy cars, but again, my blog idea cup runneth over!

Mike: What a great comment! I have the same problem at my desk. People want to know "THE RATE". They read 4.5% in the paper, so naturally that should be the rate!

The difference is at least at Kohls, those loss leaders get people in the door buying other things. That doesn't happen with mortgages.

Julianna: What a great story. I have always suspected they change merchandise when they have those blow out sales. Thanks for that inside information!

Mike M: Next blog, I am glad my readers already know where I am going with this. Smart group you are!

Trish: Excellent points! If only we could scan houses! See Mr. Client? The scan says the final price is $435,000!

Instead, the "hell" part of the real estate business is pricing. Think about my desk. House sells for $200,000....buyer and sellers happy.

Appraiser says $190,000. Bank looks at it and says $175,000.

What is the real price?

Ann: I agree. I think any going out of business sale is a complete waste of time.

Ginger: That is a rotten pricing tactic that I have never heard of. That comes really close to bait and switch. I would make them honor that coupon.

Gabe: I agree with what you are saying, but I think the whole concept of paying the "sticker price" or asking price on ANYTHING has really gone by the wayside.

Personally, when it comes to real estate, I would pay whatever to get just the house I want. There is no other property just like it, and what is more important than that place you call home.

To me, real estate is in a special catagory, but maybe I am over the top. Getting a bargain is not nearly as important as landing a place I will love to be for years to come. (investment property would be different.....bring on the bargain)

Brian: Very interesting point and one that has been expressed recently on a featured post. You know they tried that in the car business and it was pretty much of a flop. People claim they hate negotiating but then choose it when they can.

They need to feel they have WON, I guess.

Joetta: That same scenario is playing out in our market as well. Talk about shooting yourself in the foot! People do that when they buy used cars too. Our leasing company would price our used cars very low because we didn't have time to sit on them, and no lot to display them. We also detailed them to perfection, had them checked out, and placed an extended warranty on them.

As many times as we tried to tell them they were "priced to sell" we got silly offers and a lot of disappointed buyers who were "too late" when they came to their senses.

JAN

Janet, it is sad to see how most people do expect "the bargain" on everything now. They do not realize that for their "taking" here something else has to "give". Congratulations on trying to shop. And, in the process, you were playing your part to help jump start the economy.

If all consumers were a tad more savvy, perhaps retailers wouldn't play as many games? It is maddening, and I also think consumer dislike how real estate companies are not transparent regarding commsision as well, which is why our company puts our commission (along with a calculator) right on our website -- WYSIWYG!

JAN

I totally agree Chris, the lack of transparency often makes consumers feel there is more room for negotiation than there actually is. I do believe most, not all of course, but most consumers are very savvy. They go online to check out prices, they shop many different stores, and wait until the prices are at rock bottom before throwing the switch. Look at the proliferation of shop bots and consumer report type organizations where people can compare prices. The problem as you mention about real estate is that there is no transparency. Most real estate sales are not publicized so it is harder for people to compare. This cuts both ways as in good times people tend to overpay, but in lean times, they don't think the prices on offer are truly the best available. I agree, we need to become more transparent.

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