Fri, Aug

The mystery of price

Ron Johnson is not stupid. He made Target hip and launched Apple's fabulously successful retail operation but he is having a tough time as CEO of American retailer JC Penney. One of his mistakes was to do something very logical. Instead of offering shoppers constantly changing markdowns on a high priced product, he thought it made more sense to just start with a low price. The trouble is shoppers didn't agree. As James Suriowecki noted in the ‘New Yorker’( http://www.newyorker.com/talk/financial/2013/03/25/130325ta_talk_surowiecki) the "game of cat and mouse with regular, ever-changing discounts is illogical, but it's one that lots of consumers like to play."

Surely there's a lesson here. If retailers, who have been manipulating prices for decades, can get it so wrong, what hope is there for the rest of us? One of the secrets of a successful pricing strategy is to persuade each customer they are getting the best deal. Sounds obvious but by the time the number crunchers have analysed each proposition to death, this powerful, simple truth is often forgotten. Remember that all finance departments in whatever sector or country they are based have one thing in common: they never lose a sale - at least that's what they'll tell you.


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