How Outlet Malls Have Convinced Shoppers into Thinking They're Getting a Sweet Deal
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Crescent was as dimly lit as the casino had been that morning, and spookily devoid of customers. A matronly "associate" with the helpful look of an elementary school librarian greeted us the moment we crossed the threshold, and we asked her to show us the store's best-selling item. She unlocked a glass case displaying "circle of life" pendants; dainty rounds of white gold or other precious metals encrusted with diamonds. She reached in, pulled out a pendant, and turned it over to reveal the manufacturer's suggested retail price: $3,329. She quickly assured us that this was not the Crescent price.
What was the Crescent price? She smiled. It was $832, one-quarter of the original price. This seemed an astonishing discount. But was it worth $3,329 or, for that matter, $832? The embedded diamonds seemed to be of industrial quality, tiny specks that barely twinkled. The 14-carat white gold setting had the look of stamped tin. The clerk pulled a calculator out from behind the counter. "I can get you a better price," she said, "if you are willing to buy today."
We asked who designed the pendant and where it was made. The clerk admitted cheerily to having not a clue and called over the manager, a man at least two decades her junior who looked less like a jeweler than a counterman at Johnny Rocket. The manager didn't know who designed the pendant or where it was made, but he did express some certainty that the diamonds "probably come from someplace in Africa." He assured us that if we truly desired this item, he would give us the "best possible price." Just how good a price we never learned because our desire was less than true. A quick check on the Internet a few days later revealed that the diamonds in the circle of life were in fact just one step north of industrial grade, and what appeared to be identical pendants were selling on eBay for prices ranging upward of $299.
Discounters like Crescent succeed by offering the perception of value using two signals: one, being situated in an outlet mall associated with so-called premium brands, and two, setting very high reference prices. Had we wanted the pendant but were uncertain of its value, the $3,329 reference price would almost certainly have swayed us, regardless of whether we knew it to be inflated. Most of us are suckers for this "high/ low retailing," particularly when we are shopping for what we think of as luxury goods: leather gloves and wallets, silk jackets and ties, linen shirts, high-end stereo equipment, and designer anything. A designer label can make us believe that a flimsy T-shirt is worth the $150 manufacturer's suggested price (MSP) or at least close enough to it to make it a steal at $25. Rummaging through a pile of boxy, ill-fitting cashmere sweaters reliably discounted to $75.99 at basement stores each holiday season, we suspend disbelief that the $250 MSP might actually mean something. Donald Lichtenstein, a professor of marketing at the University of Colorado, has devoted much of his career to the link between cost and value.
"The biggest misconception is that consumers believe that if something is not true, the store is somehow not allowed to say it," he said. "Whatever the legal considerations, in reality the whole consumer protection thing is very limited. You have to be your own policeman. When it comes to prices, background knowledge is absolutely critical."
Most of us think we know a lot about prices, and we do. We know the price of things we buy every week: gas, soft drinks, lunch at our favorite sandwich shop. We know what it costs to ride the subway, the price of the Sunday paper, and the cost of the cup of coffee that goes with it. Things we pay for less frequently -- furniture, rugs, jewelry, mattresses, computers, digital cameras, used cars --are things we tend to know less about, including price. Kent Monroe, a pricing expert and professor of marketing at the University of Illinois, said that some states have laws mandating that retailers sell items at full price for a certain period of time before discounting them, but these laws are rarely enforced.