Pricing Secrets That Can Save You Money
By Steve Gillman
Want to save money on that next purchase? It can help to know
about retailers and how they determine prices. There are two
of these sercets covered here.
The Minimum Advertised Price
Sometimes pricing doesn't seem to make much sense. For example,
why does whole wheat pasta cost three times as much as regular
pasta? Doesn't regular white-flour pasta require the extra trouble
and expense of removing parts of the wheat? Economist will tell
you that price is determined by what the market will bear. This
is certainly an important principle to understand, but does it
always apply in real life? Well, yes, in a way - but it is complicated.
Consider the "manufacturers suggested retail price,"
or "MSRP." Also called the "list price,"
it is the price a manufacturer suggests to the store - at least
in theory. But in practice it is generally the maximum price
a retailer can charge us. After all, who really wants to buy
something that is priced higher than the manufacturers suggested
retail price? So in this case, "what the market will bear"
has been limited by the manufacturer.
Another price that manufacturers suggest to retailers is the
MAP, or "minimum advertised price." This is one we
don't hear about. It's not an absolute minimum that retailers
can sell for, and they certainly want to sell for more if they
can. But if they sell for less than this they risk upsetting
manufacturers and suppliers. Why? Because they can't convince
new retailers to carry a product if competing retailers are selling
it so cheap that it is difficult to make a profit. The new retailer
could sell it for more, but who would buy it when it is advertised
cheaper somewhere else?
Of course, you want to buy at the MAP, so to determine (approximately)
what it is for a particular product, check several stores. If
all are advertising the product on sale around the same price,
it is usually close to the MAP. The "big box" stores
stick to the MAP in their sale advertisements, as often as not.
What if you want it even cheaper? Look at small stores. They
can get away with sales that price the product below the manufacturers
minimum advertised price, because they have less to risk by angering
Be careful, though. Some stores sell below the MAP because
they're selling incomplete products. For example, if it is a
computer, you might have to buy a keyboard and speakers as separate
items. When other stores are selling a complete product, compare
the total cost of everything you need to get a product
that is functional.
Why Prices End in 99
$29.99 might as well be $30, and we know this, so why do retailers
play this game? Simple explanation: Because this pricing secret
works. You may automatically round up a price like this, but
you may not have looked at it in the first place if it said $30
instead of $29.99. We process information from left to right,
so you see the "2" before anything else, and this is
more appealing than a "3" when you want a lower price.
You see, even if only unconsciously, your mind is probably
thinking "20-something dollars" versus "30-something."
Your next thought might be "Oh, it's $30," but you
are already looking at the product, right? It makes you more
likely to buy it than if you never stopped to look at it in the
In any case, retailers get caught in this game whether they
like it or not. After gasoline retailers started pricing a gallon
using ".9" cents, for example, how could any of them
stop doing it that way? Just imagine if all the other gas stations
had gas at $2.99 and 9/10 and one at $3.00. Ten gallons would
be just a penny more there- not worth driving on. However, drivers
just see the sign and immediately think they are the most expensive
gas station (they are - it just isn't enough difference to matter).
How do you put this knowledge to work for you? Be aware that
the 9/10 caught your eye at the gas station, but a penny or a
tenth of a penny savings won't justify going out of your way.
Save more money by just stopping at the first reasonable station
- at todays prices you can't afford the gas to drive around looking
for a penny savings.
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