rss feedQuestioning the logic of price matching
Do you remember that question – which has become a cliche – where a car dealer stands next to you on the lot and asks:
“What would it take for you to drive away in this car today?”
These days, with the recession still dominating discussions, I wouldn’t be surprised if it takes a lot – lower pricing, tax breaks, special discounts, access to a competitive credit rate and cash for your old model.
And with Christmas fast approaching, The New York Times ran an informative piece on the forecast for holiday retail sales since some analysts expect it to be as sobering as last year – meaning as dismal as the late 1960s.
One prognosis from the article: Flat sales.
In a bit of a logical twist, reporter Stephanie Rosenbloom writes:
Retailers are relieved to hear that prediction. Flat sales this holiday season would at least mean that things had stopped getting worse.
In other words, the bottom of a recession can make for a bright day in a strange sort of context.
Rosenbloom quotes analyst James Russo as saying: “It’s reflective of this ‘new normal’ we’re in….Flat is good.”
She reports that Wal-Mart is offering a special $10 price on various toys. The company would “match any local competitor’s advertised offer on the same toy if the price fell below $10,” she writes.
That makes perfect financial sense, given that the price is not sky high.
A consumer can benefit by taking a price match right there instead of getting back in a car, driving to another store and fighting the crowds only to save a few dollars.
But will other companies that sell more expensive items - such as computers, electronics, digital cameras – follow suit to boost sales or at least cover costs?
Rosenbloom notes that consumers might look for consumer electronics because of an expectation of “continuing to nest” in their homes, as they wait for better times to come.
I have actually gone to electronic stores that made this price matching offer, knowing a competitor was blocks away.
In a way – and this is hypothetical - will a price match policy really work in stores where you’re talking about hundreds, or possibly thousands, of dollars for the retail cost?
As you recall, during the heady days of real estate in the United States, outbidding another party on a coveted house was the way to success.
Offering to match another bidder’s price for a house was never seen as a deal closing strategy.
When international investors traveled to Asia in recent years to sink money into factories – and those days might be over, if not slowing – business leaders there most likely never offered this pitch: “We’ll give you exactly what our competitor has offered.”
When I traveled in China, one quick lesson that I learned: When I approached three nearly-identical fruit or food stands – say at a tourist site or train station - the sellers almost immediately started talking about lowering the price for what I wanted to buy.
That meant, the seller made a sale but lost a dime off the price.
As we see, if the price is “A-B,” then the competitor is offering the exact same amount of “A-B.”
I’ve written about how a new American price – meaning significantly lower than before - might emerge given the recession.
It seems that if retailers want to make a sale – even just to cover their fixed costs or avoid losing business - they might have to consider a price of “A-B-C” on the spot.
And before that consumer walks out to buy an electronic item elsewhere.
Of course, consumer behavior differs.
The price might not be a concern for some people. Some people might need the product that moment.
And retailers who lower their price to score a sale that moment might be engaging in an edgy transaction.
As we know, in order for the wheels on the bus to go round and round in the economy, money needs to circulate.
And enough money has to be pulled in through sales to cover retail basics: Employee wages, rent, electricity, advertising and insurance.
If you’re a consumer and have money, there is purchasing power during a recession.
But it’s up to you to decide whether you want to pursue a true, free market strategy of price lowering – and especially when, where and how often.
Price matching, as we know, is better than nothing.
But in a market economy, there is always room for negotiations.
Ideally, once the economy improves and more money flows to people, this discussion will become pointless.
In my analysis, I might have overlooked something important.
If I did, let me know.
