Question

People feel better when they think they are getting a great bargain when they shop. Knowing this, some retailer’s markup items above the traditional retail price and then offer a 60 percent discount. If they had simply discounted the normal retail price by 20 percent, the resulting “sale price” would have been the same. One retailer says that he is just making shoppers happy that they got a great deal when he inflates the retail price before discounting.

Significantly marking up prices in order to offer “deep discounts” is not an unethical pricing practice per se, but it may be considered misleading advertising. The retailer is not really reducing its profits as a result of offering the sale price, even though a 60 percent discount implies a financial sacrifice on the part of the retailer for the benefit of the customer.

The situation described above could, perhaps, be considered a sales promotion that uses deception or manipulation.

As a consumer think of a place you like to shop at because of the so-called great bargains, coupons, cash back and or discounts they offer.

From your shopping experience explain if the discounts you received on your purchase you feel was a bargain deal or do you feel you overpaid.

Did you believe the retailer is sacrificing revenue for you the consumers’ benefit?

Why or Why not?

Do you find their sales practices to be ethical and beneficial to the consumer or perhaps unethical and misleading?

Answer 1

One of the places that ​​I frequently shop is a leading infant & kids wear brand operating at a global scale. Besides the attractive design offering, the key reason to shop with the brand is the big discounts they offer frequently.

​In my view, the prices that I end up paying for the end product is still expensive just considering the product quality, fabric and designing on a standalone basis. It is important to mention that the global brand has significant production quantity (optimal capacity utilization) and they leverage on economies of scale to lower the per unit cost.

​Taking that factor into consideration, the product certainly seems overpriced even after the discounts offered.

​However, I would still not consider the company's practice as completely misleading and unethical. Being a global brand with products that differentiate itself from a designing perspective, there is likely to be a premium attached to the end product even if it implies having a robust margin.

​There is a price we have to pay for the product and the price that has to be paid from a branding, designing and marketing perspective. This ends up in inflating the end product price, but is not entirely unethical from the company's perspective.

​There are global brands (across consumer segments) that command a significantly premium pricing and that's a function of the differntiating factor offered to the consumer.

Similarly, my experience is that I pay a premium even after the massive discount. However, I revisit the store for the product design that it offers and differentiates from peers.

The bottom-line is that several brands that I encounter do charge premium pricing even after the "so called" steep discounts. However, in economics, the function of purchasing power and willingness to pay plays a key role.

​If I am still buying being aware of the premium pricing attached, it is unlikely to be classified as unethical from a company's perspective.

​And it's beneficial for the consumer as they get products that stand apart and the pricing falls within their "willingness to pay" factor.