I find the effect of pricing on consumers’ perception interesting. I was at a Barnes and Noble yesterday when I overheard a cashier informing a customer about the Barnes and Noble membership benefits. She excitedly said that for just $25 a year, you get 10% off on all bookstore and café items, 20% off all adult hardcover books, and 40% off hardcover bestsellers. “Wow,” the customer says, “that’s a great deal.” I’m not sure whether he ended up getting the membership. But my reaction was actually the opposite of how the customer responded. I thought to myself, “Really? Barnes and Noble is that desperate to gain customers?” Then I thought I might as well figure out the math. $25 per year means that you’d have to spend at least $250 throughout the year, assuming that no one buys hardcover books anymore (hence, I just used $250*.10=$25). That comes to about $20.83 per month. Is that legit? Of course it depends on the type of consumer you’re talking about. But most of the people I know don’t make shopping at Barnes and Noble a habit; it’s more of a once in a while thing. Nonetheless, it’s an attractive deal. You could just buy one DVD per month and grab a Starbucks coffee on the way out and that would just about justify your $25 annual fee. But to me, it still softly cries for desperation given the digital era we are in. Even the nook doesn’t seem to help the company. There is typically an employee at the nook stand in the store and every time I pass by it, no customer is there. I’ll stop the bashing here because in reality I still frequent the store since it’s just about the only place where you can sit and read (yes, I have heard of libraries, but I prefer not to feel like I’m in junior high or below). Bottom line, sometimes “cheap” = bad.
On the other end of the pricing spectrum, you have luxury goods. Companies jack up the prices for these items, even when an equivalent product by another company sells for significantly less. It’s interesting how once a consumer finds out the price of a product, the intrinsic value of it usually goes up. Take, for example, a store that recently had a new opening on 34th & Fifth Avenue, which seems to be well received in NYC: Desigual. This private apparel company is without question unique in terms of its products. It’s not everyday fashion, with its Spanish-inspired colors and patterns. I thought the clothes were decent, that is until I looked at the price tags. I wouldn’t say the prices are high enough to be considered expensive, but they aren’t on the cheap side either. That was enough to boost my perception on the company. Brand name then isn’t always the main factor in classifying luxury goods. Companies can just play with pricing to help improve consumers’ perception on their brand and products. That clearly would not work across all industries, but it certainly does in retail. Just my two cents on how to read companies’ pricing methodologies.
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