5 Dishonest Pricing Gimmicks That Need to Die

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Wouldn't it be nice if you could just trust the price on the price tag?

Unfortunately there's a lot of marketing that goes into that price, and much of it is less than honest. Sales offering big discounts aren't what they seem. Low subscription prices evaporate after a given amount of time. And many prices you see have been artificially inflated so that they can be discounted at a later date.

These and other marketing tricks take what should be a simple piece of information -- the fair value of a piece of merchandise -- and turn it into a mystery. And consumers shouldn't have to play Sherlock Holmes to figure out if they're getting a good deal.

Unfortunately, many of these gimmicks are so entrenched in the retail industry that it's unlikely they'll be going away anytime soon. Still, we can imagine a perfect world of honest prices. Here are a few pricing gimmicks that we'd love to see go extinct.

5 Dishonest Pricing Gimmicks That Need to Go Away
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5 Dishonest Pricing Gimmicks That Need to Die
Wow, cable, internet and voice for just $80 a month? It seems too good to be true!

Well, it is. That's only the introductory promotional rate, and after a given amount of time -- usually 12 months -- your price goes up. Way up. Other industries will give you a free trial month before signing you up at a fixed monthly rate, but we're hard-pressed to think of any other major industry that uses introductory pricing like the cable business does.

The problem is that bills like cable are fixed costs in a budget, and fixed costs are supposed to stay fixed. You're hooked in by a monthly rate that seems feasible for your income, but then the second year of the contract rolls around, your rate skyrockets, and you have to reconsider your whole budget.

Sure, it's possible to get your bill lowered by calling up the cable company and yelling at them. But should a lower bill really be reserved for those with the time and temperament to fight with customer service representatives every six months?

Here's an idea for cable companies: Advertise your service at one price point, and then keep it there.
Hey, that jar of pasta sauce is only $1.99! What a steal! Well, except for one detail: It's only for shoppers with the supermarket's loyalty card hanging off their keyring.

Now, that's not the end of the world. The loyalty card is free, after all, and you just have to go over and fill out a form to sign up. But why should we have to do that? Why can't we just have the same price for everyone?

In a weird way, the fact that it's a free membership makes it more annoying. At least with Costco (COST), it's clear that the company's business model relies on members paying for access to low prices. In this case, they've just stuck an arbitrary hurdle between you and the best prices.

It's all marketing, of course. Making some prices "members-only" makes the discount even more enticing, and most shoppers don't realize that the cards are used to compile information on customers' buying habits.

The good news is that not every grocery store uses loyalty cards. Trader Joe's and Whole Foods both offer uniform prices, and Shaw's and Star Market are dropping them after their parent company Albertsons was bought out earlier this year.
Imagine you own a clothing store, and you're holding a big sale on 100 items. Of those, 80 items will be discounted by just 10 percent. Another 17 styles will be discounted by 20 percent. And three other styles (shirts that no one is buying, frankly) will be discounted by 50 percent just to get them out the door. How would you describe that sale?

If you said "up to 50 percent off," congratulations: You have a long career in marketing ahead of you.

The phrase "up to" is the ultimate hedge when it comes to marketing a sale. All it means is that at least one or two of the items on sale is marked down by whatever number they think will get you in the door. Retailers put up a big sign that says "50% OFF" in large print, with "up to" in much smaller type above it.

To be fair, not every retailer that holds one of these sales is being totally disingenuous -- this recent sale at Sears was advertised as "up to 30% off," but it actually delivered some significant discounts.

All told, though, we'd prefer that marketers just retire this effectively meaningless phrase and stick with fixed percentage-off deals.
This is less of a gimmick, and more a way of life in the retail world: Giving products a higher "original" price than you intend to sell them at, and then marking them down so that people feel like they're getting a deal.

Ron Johnson saw the foolishness of this system when he took over at J.C. Penney, and set out to change it. And while his execution left something to be desired (to say the least), we liked his revolutionary idea to do away with sales and promotions and just offer honest low prices from the start.

As the company has backpedaled away from the policy and reinstituted sales, it's revealed a lot about the craziness of the retail industry's mark-up-to-mark-down strategy. Earlier this year it had to fend off accusations that it was pushing suppliers to make up 'suggested' prices to make its own prices seem lower. Shoppers have found higher-priced stickers slapped on top of the old ones, clear evidence that it was raising prices just so it could lower them through sales and coupons. And former employees have come out to accuse the retailer of misleading consumers with its new pricing strategy.

To be clear, there is nothing unique about what J.C. Penney is doing now -- it's just more visible, because we can actually see it raising prices after experimenting with a more honest pricing strategy. When Banana Republic prices its dress shirts at $80 and then has sales every other day offering 30% or 40% off, it's not being generous. It's just taking a $50 shirt, marking it up to $80, and then discounting it to make you feel like you're getting a great deal on an $80 shirt.

It's an annoying marketing gimmick. And as Ron Johnson's fiery demise proved, it's never going away.
...Or "97." Or "95." The last digit might vary, but the goal is the same: To make the price seems a little lower by knocking a few pennies off. A $5 burger becomes a $4.99 one. A $200 TV becomes a $199.99 TV. What, they think we won't notice?

Well, here's the thing: We might notice, but it still makes a pretty big difference in our buying behavior. A study conducted a few years ago asked participants to choose between a $2 pen and a $4 pen. When the prices were altered so that the choice was between a $1.99 pen and a $4 pen, participants were suddenly more likely to go for the cheaper pen. Make it a choice between a $2 pen and a $3.99 pen, and suddenly the pricier pen became more attractive.

"Consumers should be aware of the subconscious tendency to focus on the leftmost digits of prices and how this tendency might bias their decision-making," concluded one of the authors.

And even if consumers aren't aware of this tendency, retailers certainly are. Unfortunately, that experiment makes it clear why this is another gimmick that will never go away: No store wants to be the first to round up its prices and be perceived as more expensive than the competition.

Matt Brownell is the consumer and retail reporter for DailyFinance. You can reach him at Matt.Brownell@teamaol.com, and follow him on Twitter at @Brownellorama.
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