The Funny Thing About Fake Price Markdowns

John Krautzel
Posted by in Retail


Whether you have worked in the retail industry for five years or twenty, you know that price is one of the most important factors consumers consider when deciding whether to purchase an item. Your pricing strategy must strike a delicate balance between driving shoppers to your store and helping your company make money. Comparison shopping and other tactics can help you pick the right prices, but some retail professionals are taking things a bit farther when it comes to developing a pricing strategy. Fake markdowns are a contentious issue in the retail world, and it looks like consumers and legal professionals are now taking a stand against them.

 

JCPenney made the news when it promised to stop offering markdowns on inflated prices, but the new pricing strategy did not pay off for the retailer. Consumers missed being able to use coupons and shop during sales, so profits declined. The retailer lost more than $4 billion after Ron Johnson took the helm as chief executive officer. Johnson admitted that he made mistakes during his tenure as CEO, saying that the company had misjudged consumer demand for simpler pricing. The company's big financial loss had a positive impact on off-price retailers, with T.J. Maxx and Ross Stores gaining a significant amount of market share while JCPenney floundered.

 

It now appears that part of JCPenney's pricing strategy involved artificially inflating prices just to reduce them later. In January, rumors started circling that JCPenney executives had asked their suppliers to give them fake list prices. The idea was that JCPenney would display these fake prices next to the store's lower prices, getting customers to think they were getting good deals on their purchases. Company executives denied asking for fake list prices, but JCPenney does follow the practice of posting the manufacturer's price alongside its lower price for some products. Whether those manufacturer prices are real or fake is another question.

 

Consumers are pushing back against fake markdowns and other unethical tactics with lawsuits against the retailer for its pricing strategy. In one suit, the plaintiff claims that the retailer increased the prices displayed on price tags so that employees could reduce those prices later. Another plaintiff claims that JCPenney started out with higher prices that no one could reasonably be expected to pay. These cases have not yet been decided, so you'll have to wait and see how their outcomes affect your company's pricing strategy and the retail community as a whole.

 

Technology has made it easier for consumers to compare prices and take advantage of deep discounts, so retailers must adjust their strategies accordingly. The use of fake markdowns to attract new customers and make them think they are getting a bargain is no longer an effective tactic. Making this the cornerstone of your pricing strategy is also unethical, and it could get your company in hot water with customers.

 

(Photo courtesy of Sura Nualpradid / freedigitalphotos.net)

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