The first of April is the time of year when, for a brief moment, everyone pays attention to the fools among us. But as it turns out, some businesses do that year-round, because your foolish purchasing behavior translates directly into their profit.
I’m referring to the way products are priced. Usually, the price on the sticker is the price you pay. But when it isn’t – well, that’s when some companies earn big bucks from our collective ignorance.
(And by the way, I consider myself one of you – I’ve fallen for a deceptive price many, many times, and I’m not afraid to admit it.)
A study by Harvard researchers several years ago found that in many product classes, consumers “lack either the ability or motivation to conduct a price comparison.” Their conclusions are still true today. We either can’t – or won’t – scrutinize a product price.
Here’s how business try to dupe you, and how you can avoid it.
Offering an incomplete price.
The American airline industry is a prime example of this questionable practice. For years, the federal government allowed airlines to quote fares that excluded taxes and mandatory airport fees, making their fares appear lower than they were.
Then airlines began a process called “unbundling” – removing items that traditionally were included with a fare, such as meals, the ability to check a bag and make a seat reservation.
This allowed some airlines to advertise $9 fares, which unfortunately, were impossible to actually book. In 2011, the Transportation Department cracked down on this pricing, and more regulations are expected – but not before the airline industry made billions from clueless passengers who believed the fare they were quoted was the fare they’d actually pay.
The less-is-more price.
This is a common strategy for squeezing more profit out of a product. For example, a “half-gallon” container of orange juice is actually 59 ounces and a roll of toilet paper is shorter, and a new and improved salad dressing is 4 ounces smaller than the old one – but costs the same. Any time a manufacturer advertises a “great new look” at the same price, be afraid – be very afraid.
Misrepresenting the terms.
Marketing language can obscure the actual terms of a purchase. For example, in 2005 Blockbuster settled claims with 47 states that charged the nation’s largest movie-rental chain with deceptive advertising.
Blockbuster had promised to charge “no late fees,” when, in fact, customers who kept their rentals were being billed the full price of their video or game. But many consumers didn’t bother looking at Blockbuster’s new terms – they simply assumed the end of late fees meant the end of all fees. And that erroneous assumption helped Blockbuster make more money.
Whenever you see that little star on a price – whether you’re shopping for a car or a cruise – be careful. Companies can hide all kinds of “gotchas” under the asterisk. Probably the worst offenders are credit card companies, which conceal rate increases, interest charges and fees in the fine print. These extras can make the cost of a “free” credit card ridiculously expensive. Mind the star!
Leading with a low-priced item no one wants.
You’ve seen these offers – the ones that says, “prices starting at $99 …” Problem is, although there’s a base model or a stripped-down version of the advertised item, no one buys it.
Car pricing can work like this, but any durable good like an appliance or electronics item, can be advertised in this way too. It’s fundamentally dishonest, of course, because while you can technically buy the $99 blender, no one wants to. The lesson: When you hear the word “starting” as it relates to a price, be careful.
The mark-up, mark-down.
Almost every business marks products up when they order them from the factory or a distributor – it’s how they turn a profit. It’s the marking down that becomes problematic. When a clothing rack says “20 percent off,” what, exactly is the markdown from? The retail price? Or some other undisclosed rate?
Retailers play price games in this way, and the only real way to know if you’re getting a good deal is to comparison shop (thank you, Internet). The labels are meaningless – in fact, they are worse than that. They are often misleading.
Pricing games are easy to avoid if you pay attention to the fine print and read them carefully. But careless shoppers are easily fooled, to the delight of many an unscrupulous business.