Black Friday weekend has just passed, which means we are being slammed with sales prices and special promotional prices from anything from clothing and jewelry retailers to newspapers and software. As a marketer, I should find this time of year exciting! Every brand in the world is pulling out all the stops to try and grab attention. Surely the best that marketing has to offer is on display.
Unfortunately, Black Friday brings out the worst in marketing. Companies use sales and promotions in a way that is manipulative or deceptive. This guide is meant to explain to consumers how to deconstruct the use of sales pricing, explain why sales prices are overrated, and to teach aspiring marketers how to avoid unethical pricing practices.
Why Do Stores Use Promotions?
If we take a step back, promotional pricing seems strange. Let’s say I sell chairs for $100 each. Why sell them temporarily for $75 each? In theory, every item should have an “ideal” price that balances the costs compared to profits, so at least one of these two prices is wrong. What is the incentive to sell something at a lower price of a limited time?
Part of the answer is found in the term “promotional pricing.” Marketers are continually looking for ways to communicate with your customer so that they actually pay attention. A sale gives you an excuse to reach out to your customers and say, “Hey, you should check out what we have for sale.” When I receive an email from a brand that I like, I’m more likely to open it when it says “X% off!” in the subject line.
One clear sign that a sale is meant to be promotional is the business will make a great deal of noise about 10-20% off. This is not particularly impressive, but with bright tags and slick flyers, that 10% off can feel like a special deal.
A loss leader means the company is selling an item at such a discount that they are losing money with each sale, but the business is hoping to make back a profit from the other things you buy in the store. This is particularly popular among grocery stores where the half-price milk or a dollar off eggs will be enough to get you in the door. Once you are there, you are likely to complete an entire shopping trip at the store, so the company makes money ultimately.
Loss leaders are a risky strategy for online retailers, as consumers tend to shop around and are happy to buy one item that is a great price. That’s why large department stores or superstores like Walmart use “in store only” sales.
Feeling of Urgency and Fear of Missing Out
True story: I am currently considering buying a TV. I know I could buy a TV today, but I could also buy it tomorrow, or next week, or next year. I’ve been pushing off buying a new TV because deciding which TV to purchase is a lot of work, and I’m conflicted about shelling out the money. This has been going on for literally months and could continue for months.
Now, imagine I saw an offer for a TV that met all my needs and was being sold for 50% off for a limited time. That would be a powerful push to actually make up my mind! A lot of goods, especially middle-budget items that aren’t a necessity, fall into this category. A limited-time sale raises a feeling of urgency – you don’t want to regret missing out on a deal.
FOMO is a helluva drug!
It is worth contrasting promotional sales with clearance sales, as these have different purposes. Almost all inventory eventually “goes bad,” either because it literally spoils like food, styles that have gone out of fashion, or out-of-season stock that is no longer in demand. Businesses will offer significant discounts on these items before they go bad so they can get some money back from their initial investment.
Clearance sales are often defined by major discounts – at least 40%. They often receive much less advertising than promotional sales, probably because the massive savings are enough to drive a crowd all on their own.
Sales and Brand Perception
Some brands seem to be offering promotions all the time, while others never seem to have sales. Why is that?
Here’s a hint: many of the companies that don’t offer sales are luxury brands. There is no Black Friday sale on the Tesla, Gucci, or Chanel websites. Sales can hurt your brand image, especially among high-end consumers.
Sales for designer goods also have the risk of undercutting yourself. If you run Gucci, your most valuable asset – by a lot – is the name “Gucci.” The Gucci label is one of the most powerful factors that makes your bags valuable, so a bag that is on sale has about as much “Gucci power” as a bag at full price. This is why luxury brands tend to be extremely controlling about old stock and may destroy it rather than sell it at a discount.
High-end brands also rely on an image of exclusivity and prestige. Part of the reason that Prada and Chanel are valuable is because not everyone can have them. Some rich people like to wear fashion that middle-class people can’t. Is that elitist? Clearly, but we are talking about designer goods, so that is a feature, not a bug.
On the flip side, deals and sales become part of brand identity. Some consumers, usually middle-class parents, like the feeling of getting value. Generations of advertising have ingrained the idea that good mothers are responsible for buying quality houseware for a competitive price. Deals are like a scavenger hunt or a puzzle, and there is a satisfaction that comes with “winning the game.” This is also the type that might buy things they don’t need just because they are on sale.
When the Penny Dropped
The luxury brand and value brand mentalities came into collision at J.C. Penny. In 2012, Ron Johnson took over as CEO of J.C. Penny. He had been instrumental in creating Apple’s stores, widely seen as one of the most successful and influential projects in modern retail.
Unfortunately, Johnson’s lessons learned at Apple did not translate to J.C. Penny. The company had long been aimed at suburban mothers and tended to lean heavily on promotional prices. Apple has always been sheepish about sales as it positions itself as a luxury-lite brand.
Johnson decided to switch J.C. Penny’s pricing model to reduce the importance of sales. This alienated many loyal customers who loved hunting for bargains. Sales plummeted, highlighted by a 32% decrease in sales in Q4 of 2012. Johnson was fired in April of 2013. The company was never able to recover fully, eventually filing for bankruptcy in May of 2020. Many other mistakes were made along the way, but misalignments in pricing philosophy played an important role in steering J.C. Penny in the wrong direction.
Sales Are An Illusion
To truly understand why sales prices are overrated, we need to go deeper. Sales prices are an artificial construct. Companies get to choose their prices. There is no difference between a $10 item a $20 item sold at 50% off. Psychologically, seeing that the regular price is $20 suggests it has a value of $20, and we are getting that for only $10! That is an illusion.
Ideally, you should ask yourself how much you would pay for something before looking at the price. If you said to yourself, you would pay $15 for an object selling for $10, that’s a bargain no matter how the retailer arrived at that price. In contrast, a cost of $20 isn’t worth it, even if the original price was $200.
This approach seems obvious, so why don’t we follow this logic? Partly because we aren’t good at setting values in the abstract. If you were shown a TV with all the relevant specifications, how effective would be at picking a price? This is part of why sales tags always make a point to show what the price is used to be – you use the original price as your standard.
What grinds my gears are sellers that are essentially using regular prices that are entirely fake only to apply a massive discount. A couple of days ago, I encountered the following promoted video on YouTube.
Let’s get out of the way the fact that this stocking is “tactical.” Unless you are trying to battle German terrorists that have taken your wife hostage in the Nakatomi building, I can’t imagine a situation where you would want a stocking to be “tactical.” This is a wretched product, but that isn’t relevant to our discussion, so let’s try to ignore that fact.
This ad claims to be selling stockings at a 60% discount, which is quite generous! But I have a question: what time of year would you buy a stocking other than late November? Stockings are one of the most time-sensitive purchases imaginable. So why would a company use a special sale price for the single moment that anyone would actually buy their ugly oversized decorative Kevlar socks?
The “real” price is fake. The sale price is the real price. This obviously isn’t a crime, but it is clearly meant to trick people into thinking they are getting a good deal when they aren’t. Behaviour like this make sales prices overrated.
The Price We Pay…
Team tactical stocking is not the only company to use these shady tactics, though most are less brazen. As consumers, we need to remember that pricing and promotions are devices used to sell more stuff and are not meant as a gift to you. Why exactly is this item on sale?
Marketers should be more considerate about the way they present and promote sales. The higher calling of marketers is to connect people to products that will improve their lives and avoid the temptation to trick people with deceptive pricing and promotions. Hopefully consumers that many sales prices are overrated to push back on unethical companies.