How Outlet Malls Have Convinced Shoppers into Thinking They're Getting a Sweet Deal

The following is an excerpt from Cheap by Ellen Rupel Shell (Penguin, 2009).

HOMER: Look at these low, low prices on famous brand-name electronics!

BART: Don't be a sap, Dad. These are just crappy knockoffs.

HOMER: Pfft. I know a genuine Panaphonics when I see it. And look, there's a Magnetbox and Sorny.

SALESMAN: Listen, I'm not going to lie to you. Those are all superior machines. But if you like to watch TV, and I mean really watch it, you want the Carnivale. It features a two-pronged wall plug, a pre-molded hand grip well, durable outer casing to prevent fall apart . . .

HOMER: Sold. You wrap it up, I'll start bringing in the pennies.

-- The Simpsons, "Scenes from a Class Struggle in Springfield," first aired Feb. 4, 1996

The "deluxe" room at the Excalibur was a bargain. There were even cheaper options available in Las Vegas that week, but not with Exacalibur's Knights of the Round Table meets Six Flags decor and its prime location just steps from the Strip. For $69 plus tax I got the full-throttle Sin City experience: a lobby thick with slot jockeys; billboards flashing round-the-clock neon teasers for bare-breasted "exotic" entertainment; and round tables of low rollers drinking scotch at 9 a.m., hope draining from their faces like transfusing blood.

I was in Vegas to gamble, though in truth the casino was only a detour. My mission was to check out the retail gambit, which in Vegas seemed just as dicey as the slots. Scores of stores circle the hotel lobbies, and hundreds more line the Strip, hawking everything from tattoos ("Fresh needles for every new customer!") to Corum Golden Bridge or Chopard Haute Joaillerie watches with an optional diamond wrist strap. It is terra incognita for a bargain hunter, but fortunately I had a guide: Gillian Naylor, a professor of marketing at the University of Nevada, Las Vegas. Naylor's paper, "Price and Brand Name as Indicators of Quality Dimensions for Consumer Durables," in the Journal of the Academy of Marketing Science, had alerted me to her expertise in connecting the dots of brand name, price, and consumer perception. Her standards were high, and when I shuffled into her modest office, her appraisal of my stated mission was, to put it kindly, dubious. "The mall you've picked," she said evenly, "is pretty bad. They have Catherine Plus Sizes and Dress Barn Woman." Naylor is tall and elegant and no plus size. I felt a little foolish to have come all this way with no fashion sense. Sensing my discomfort (and panic), Naylor gently suggested that we aim a tad higher. She named a glamorous-sounding venue featuring discount versions of Coach, Dolce & Gabbana, A/X Armani Exchange, and 120 other stores. Ashamed to admit that my budget was more Dress Barn than Gabbana, I agreed, and minutes later we were off in her Acura TL, windows up, air-conditioning steady, destination Las Vegas Premium Fashion Outlets.

Outlet malls are big in Europe, Japan, and Hong Kong. They exist in Turkey, Dubai, and South Africa. If there is one deep in the Amazon rain forest, and another just south of the North Pole, it would not surprise me. The New York Times once reported that outlet malls were not only the fastest growing segment of the retail industry but one of the fastest growing segments of the travel industry. Franklin Mills Outlets in northeast Philadelphia rings in four times the visitors of the Liberty Bell. A pair of outlet malls near San Marcos, Texas, outdraw the Alamo. Colonial Williamsburg can't hold a candle to mega-outlet mall Potomac Mills. This is not to suggest that Americans don't take pride in our national heritage; we surely do. We revere the Liberty Bell and Colonial Williamsburg. We salute the Alamo. It's just that most of us prefer to spend our time where we believe our dollar will go further.

About 55 million Americans shop in at least one of the nation's roughly three hundred outlet centers every year. Stretched over five years, that number adds up to nearly every man, woman, and child in the country. Even more astonishing is the number of miles chalked up in this annual pilgrimage. The total distance that Americans travel to outlet malls each year equals 440,000 circumnavigations of the globe. If that number seems a little abstract, consider this: The distance to the moon is roughly equal to 10 trips around the globe. That is, we make 44,000 moon launches' worth of outlet visits each year.

People travel celestial distances to outlet malls because until recently outlet malls were located celestial distances from people. On the surface this makes no sense; full-price "regional" malls are always situated with regard to demographics gauging the buying power and density of surrounding communities. And as a rule investors won't put money into malls without the requisite "threshold population densities" that all but ensure sales. Nor will builders build them. But outlet malls are different. Resolute in their remoteness, they stand secure that, like Muhammad and the mountain, the customers will come to them. Freed from the need to offer convenience, outlet malls are plopped down with what appears to be wild abandon. Of course that is an illusion: They are almost always located off a busy byway and, whenever possible, between two or more population centers. Generally this is a long drive from any particular population center -- 25 to 100 miles outside the metropolitan shadows, where real estate is cheap and the tax incentives sweet. In fact, until recently manufacturers preferred and sometimes even required outlet malls to locate far enough away from their department store rivals to avoid angering full-price retailers.

The remote location of outlets is not merely a defensive, cost-saving maneuver. It is also a deliberate strategy. In the public mind, convenience is a trade-off for price, and price is traded off for convenience. Inconvenience connotes cheap, while convenience connotes pricey. This is why restaurant valets can get away with charging $20 to park your Honda on the street and why "convenience" stores can charge $3 for a can of condensed chicken noodle soup. In a very real sense, outlets are the anti-convenience store. Visiting the outlets demands an investment in time, deliberation, and energy beyond what we invest in most other leisure activities. And because the effort required to reach and shop at them is substantial, even extraordinary, the experience of going to the outlet is elevated in our minds to "special occasion" status. A trip to the outlet mall is not passive, not simply a matter of popping in to pick up a few things. We have to work to get there, piling up hefty "sunk costs." All that time! All that gas! "I gave up my entire Sunday afternoon and even missed the game to come here!" Psychologically speaking, all this and more must be repaid in the form of purchases made. In making that long trip we are actually engaged in a transfer of power away from ourselves to the outlet itself. The mall has extracted a price, and in demanding repayment, we are in fact taxing ourselves. Our expectations are raised at the same time that our guard is lowered, and in making this bargain we are willing to forgo many things that we once demanded from a satisfying shopping experience: variety, serendipity, aspiration -- and fun.

Au Bonheur des Dames, detailing the rise of a fictional department store in nineteenth-century Paris, Emile Zola painstakingly describes the mostly female clientele swooning over the store's luxurious settings: "all the velvets, black, white, colored, interwoven with silk or satin, scooping out with their shifting marks a motionless lake on which reflections of sky and landscape seemed to dance." Few if any shopping centers today can boast of velvet lakes, but many strive to offer at least the impression of luxury: soaring atriums, fashion shows, valet parking, a jazz band or high school choir performing on Sunday afternoon. The purpose of this embellishment is to seduce clients, to lure them in and set them up for the sale.

Mall designers today strive to do everything possible to anticipate and stimulate desire. How they do this varies, but as one prominent mall developer observed, "The more needs you fulfill, the longer people will stay." It is unlikely that many mall prowlers would claim they need to be entertained, but they may sense that need when a fashion show or promotion is announced through the mall's loudspeaker system. The show captures attention and entices shoppers to forget their promise to themselves not to linger or, worse yet, overspend. Thanks in part to such innovations, the typical visit to a mall extended from twenty minutes in 1960 to nearly three hours in 1979.

A team of business scholars recently observed that "making efforts to improve patron satisfaction with mall attributes will improve the hedonic shopping value patrons believe they get from a mall visit and will increase the likelihood that they will visit again in the future." Plainly put: Build it nice, treat them nice, and customers will stay longer and return more often. No quibbles there. But what these scholars failed to recognize -- and what discounters know -- is that customers staying longer or coming more frequently does not necessarily translate into their spending more money.

The zombies in Dawn of the Dead wandered the mall for days in numb fascination, never once pulling out a credit card. The same is often true of real-life patrons for whom the mall has become a point of congregation but not necessarily commerce. Senior citizen "mall walkers" come for a brisk mid-morning stroll and then commune for hours over a cup of coffee in the food court. Teenage "mall rats" spend entire weekends roaming in packs. (Mall managers complain of becoming a "babysitting service" for too-young-to drive teens who are all but abandoned by their parents.) Stay-at-home parents use the mall as an escape hatch for restless toddlers. The more enchanting, the more inviting, and the more comfortable the mall, the more powerful its draw as one giant living/play room. For this reason not all outlet malls are overly concerned with the "hedonic impact" of their environments. Rather, many outlet developers follow what might be called the "Golden Arches" approach to social engineering.

At McDonald's and many other fast-food restaurants, the lighting tends to be unflattering fluorescents, and the seats are bolted to the floor at an awkward distance from the tables. The purpose of this is not to prevent theft of the chairs, as many think, but to discourage elders, teenagers, and other undesirables from getting comfortable and congregating for hours over a small coffee, or an order of fries. Discomfort does seem to keep the customers churning; on average, fast-food patrons spend only eleven minutes at their tables. (The optimal fast-food customer -- as defined by the fast-food industry -- takes no table time at all but does a quickie through the drive-through.)

Outlet malls, too, minimize amenities to discourage wasteful lingering. You are not likely to stumble on a fashion show, listen to a chamber orchestra, or enjoy a gourmet meal at an outlet center. But that doesn't mean you won't spend a lot of time dispersing your paycheck. On average, shoppers spend nearly 80 percent more money at a bare bones outlet mall than they would at a fully loaded regional mall. A popular rationale for this seeming paradox, in addition to the inconvenience hypothesis, is that outlet shoppers spend more to save more on things they really need. This theory certainly makes sense. What better place to stockpile staples such as underwear, T-shirts, sheets, and other basics than the outlets?

Unfortunately, there is no actual evidence for this -- no evidence, for example, that outlet mall shoppers are more likely than other shoppers to buy in bulk or to have a specific purchase in mind before getting in their cars to drive an average of 50 miles round trip. Outlet shoppers are pretty much like all shoppers, which is to say that while they might have an idea of what they are looking for, they are also very much open to suggestion. But unlike other shoppers and very much like gamblers, outlet shoppers believe they can "beat the house" by scoring great deals on expensive brand-name products.

What these shoppers too often forget is that, just as in Vegas, the house almost always wins. Outlet is a mnemonic for value; the very word loosens inhibitions and purse strings. At one time, factory outlets offered defective but perfectly usable goods sold directly to consumers straight from the factory store. Today this is a rarity. Factory outlets now offer mostly what they claim are first-quality brand-name products, and this claim reduces worries that the merchandise at outlets might be second rate. The brand-name distinction is critically important, because many consumers perceive any discounted goods as less desirable unless given a reason to believe otherwise.

If a penny saved is truly a penny earned, outlet shoppers feel that they are "earning" plenty. As literary scholar Marianne Conroy wrote, "The lure and the rationale that draw customers to the factory outlet mall is price, not escape. . . . [The factory outlet] secures a pragmatic and instrumental vision of shopping over and against the recreational model of consumption." For this reason we forgive the outlet mall many things. We don't expect the service there to be fluid or the products necessarily top-notch. At the outlet mall, shopping is severed from its mooring in frivolity and might even be described as a Calvinistic enterprise; spending money is not play but work, sometimes very hard work. So, psychologically at least, the bargains aren't gifts; they are earned.

Navigating Las Vegas Premium Outlets felt very much like work: 435,000 square feet of brand-name storefronts lined up in standard mall formation like so many dominos. The mall was of the open-air variety, scattered with scraggly palm trees and cooled with an astonishingly primitive system of what appeared to be canvas canopies and humidifiers. There were no fountains, no music, and no place to sit. Most customers looked exhausted. Except for Prof. Naylor, who looked ready for the hunt.

She and I window-shopped our way down the long row of storefronts -- Crabtree and Evelyn, Journeys, and Samsonite. We detoured at Naylor's suggestion to have a look inside Crescent Jewelers, part of a West Coast chain that occupied a spacious corner across the mall from a K. B. Toy Outlet. (This placement seemed strategic. Harried dads could haggle over Mother's Day earrings at Crescent while across the way their kids haggled over Hannah Montana dolls and Lightning McQueen remote-control vehicles.)

Naylor's interest in discount jewelry stems in part from the work of one of her graduate students; she had recently completed a study of the jewelry department of J. C. Penney, the no-frills department store chain where Sam Walton got his start. The student concluded that Penney's and other discount jewelers lure customers with drastic reductions off the manufacturer's suggested retail prices, but the manufacturer's suggested price is not even intended to reflect the real price. More accurately, Naylor said, it is a mythical price, a reference price with which to manipulate customers' willingness to buy. She was almost certain that Crescent would offer some vivid examples.

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.

As many of us suspect, sale prices are often full prices dressed up in discount drag. Monroe served as an expert witness in a particularly egregious case in which a mattress manufacturer sued the (now-defunct) May Department Stores for wildly overstating the reference price of mattresses. The case raged on for three years and was finally settled, but this did little to dissuade mattress retailers from inflating reference prices to increase the apparent value of their wares. The tactic has become so common that department stores typically rotate discount offers through a number of mattress brands so that at least one brand appears to be on sale at any given time. (In reality, no mattress is significantly discounted; rather, the brands not on sale carry inflated prices.) Given that most of us buy mattresses very rarely and have little or no knowledge of or preference for a particular brand, we are likely to purchase whatever brand is on sale, none the wiser that the sale price is actually the real price.

This may seem benign, but from a business perspective, it is not. Monroe and other marketing experts agree that inflated reference prices are a serious problem. Although savvy consumers tend to discount high reference prices, they don't discount them enough to be unmoved by them. We are more likely to buy a mattress -- or any number of items -- with a high reference price than an item with a lower, more accurate reference price, regardless of its quality or even our real preferences. And as a result of these very high reference prices, our concept of prices of all kinds remains skewed, biasing our thinking on future purchases. We may actually believe that a $250 mattress should be priced at the original manufacturer's suggested price of $1,000 or at least $500, making it difficult for an honest broker to sell a $250 mattress tagged as such. We want a $1,000 mattress for our $250, not a $250 one! This leads to a cycle of inflated reference prices, more deception, and more consumer confusion about the meaning of price.

Sleight-of-hand reference pricing is especially common when retailers demand and get unique names for the various models of items they sell, making it all but impossible to compare features across stores or even across brands within a store. In the case of mattresses, selling points such as the number of coils or the thickness of "memory foam" are meaningless to consumers and, for that matter, to most salespeople. If we are going to check on quality, we need a number or name by which to compare a given model to others in its category. But when these numbers and names vary from store to store, they are useless as a reference point. As one industry insider told Consumer Reports, "It's difficult to compare mattresses unless you cut them open. The retailers demand exclusivity of the cover and label. They don't want their product shopped."

Reference prices and selective discounting direct our everyday buying behavior in ways most of us don't notice and would never suspect. At the grocery store we are far more likely to buy an item at a reduced price even if the sale price is higher than the regular price at another store. Just seeing the difference between the full and reduced price motivates the purchases. It is as though, rather than spending the cost of the product, we're actually earning the savings. Lichtenstein has done surveys of shoppers exiting supermarkets, asking them the prices of various items in their shopping cart. "Usually they burst out laughing because they have no idea how much they've spent," he said. "But they usually do know how much money they've saved." Reference pricing is so powerful, Lichtenstein said, because it seems to confound the consumer paradox of wanting more but wanting to spend less. An inflated price makes a product more desirable and makes the actual price seem low by comparison. So whether or not you were actually looking for that product or can even use it, you now desire it. This phenomenon holds an almost irresistible psychological allure. "No one --not even me --is not influenced by reference prices," Lichtenstein said. "Once you see them, you can't get them out of your head."

Factory outlets and Las Vegas both play into this natural human desire to "beat the house." And like the house, outlets are nearly impossible to beat, at least consistently. This is doubly true in "premium" luxury outlets where fantasy is a key marketing tool. While luxury is not apparent in these places, the very word instills the impression that it is hovering invisibly over the proceedings like a benevolent fairy godmother waving her magic wand.

Luxury has always been with us, but until recently luxury goods were by definition attainable only by the few. In her absorbing book Deluxe: How Luxury Lost its Luster, reporter Dana Thomas traces the luxury market back to eighteenth-century France where Marie Antoinette "overran her annual clothing budget of $3.6 million by buying gowns encrusted with sapphires, diamonds, silver and gold . . . " Clothing designed and made for royalty and its retinue was in those days so fabulous and fragile that packing it for travel was a job in itself. Louis Vuitton, a farmer's son, walked from his home in the Jura mountains in eastern France to Paris to apprentice himself to a trunk maker, where he learned to build and pack trunks for the world's most discriminating clientele. Eventually, Vuitton had his own business, for which his son Georges designed the distinctive interlocking LV logo, thereby launching the phenomenon of luxury brands.

The rise of Louis Vuitton is similar to that of many luxury brands such as Dior (which Vuitton now owns) and Gucci. All of these began as family-owned workshops specializing in one or two items and serving a small and exclusive clientele. This pattern changed in the 1960s when Yves Saint Laurent, a Dior assistant at the time, introduced a lower-priced ready-to-wear line and a selection of fragrances and accessories affordable to a wide range of consumers. "From then on," Thomas writes, "luxury was no longer simply about creating the finest things money could buy. It was about making money, a lot of money."

Coach was at the cutting edge of this trend. Founded in 1941, the company started as a small leather workshop where craftsmen tooled wallets and belts for sale by major retailers. In 1946, Miles Cahn, son of one of the firm's investors, joined the company fresh out of the army. Cahn didn't know much about leather goods, but he was a natural businessman. Among his innovations was using leather treated in the manner commonly used in the making of baseball gloves to develop softness and patina with wear.

Eventually he bought the company and, at his wife Lillian's suggestion, began making a variety of women's handbags to supplement the factory's low-margin wallet business. Sold under the brand name Coach, the bags were fashioned from sturdy cowhide, the grain and seams of which were deliberately kept visible, a notable improvement on the leather-pasted-over-cardboard technique used by most mass-market manufacturers of the time. Cahn built his bag business into a $20 million company and sold it to the Sara Lee Corporation in 1985. Cheesecake giant Sara Lee repositioned Coach as "affordable luxury," an increasingly popular marketing slogan as brands took on a significance that eclipsed the stores selling them. In 2000, Coach broke away from Sara Lee and developed a collection of wallets, purses, and bags in both leather and canvas. These "signature" items were branded with the distinctive C logo set in a checkerboard print, and many were hot sellers. The company opened new stores in North America and Asia (the European market was considered too competitive), and outsourced most of its manufacturing to China and other developing countries.

Today, Coach is a $2 billion operation. And according to Cahn, most of the company's profits stem from its seventy-five-plus factory outlet stores. The first Coach bag discount outlet was in East Hampton, Long Island, a side project Cahn concocted to unload bags with slight defects. Run by Cahn's children, the outlet was incredibly successful, with inventory frequently selling out within hours after the store opened. "We wanted to be fair to our customers, and we figured that selling slightly defective goods at half price was a reasonable thing," Cahn said. "The customers agreed."

Some brands continue to stick to this formula, offering deep discounts on damaged or slightly blemished goods. Others sell last year's line or, in the case of electronics, refurbished or floor models or returned goods. But Coach, the Gap, Brooks Brothers, Ann Taylor, and Donna Karan, among others, add to their mix items made explicitly for the outlets. Generally these items are cheaper to produce, have fewer details, and are of lesser quality. Still, they carry the brand name, and therefore seem to be worth if not the reference price, then certainly more than the asking price. Lichtenstein put it this way: "Outlet malls today are the absolute epitome of the reference pricing scam."

When Naylor and I visited the Coach store at the Las Vegas Premium Outlet Mall, no shoppers seemed interested in the $85 shapeless brown canvas sacks heaped on a table in the center of the store. Neither of us recalled seeing bags like this in Coach's regular store, but a salesclerk assured us that every item here was also available in the full-price Coach stores. Naylor raised an eyebrow and then took me on a tour. The tags on the brown bags and on most of the other merchandise was branded with an F for "factory outlet." (The one exception was a display of green and pink summer canvas purses, four months out of season.) Naylor pulled from the shelf a large slouchy leather bag. It didn't take a magnifying glass to see it lacked the finish, feel, and details of a luxury brand. Good quality, yes, with the heft and look of a department store private label, but not luxury. Roughly 80 percent of the goods sold at Coach outlets are lower-end pieces manufactured specifically for these stores.

The linking of quality with brands extends back to ancient Roman craftsmen and, even before that, to ancient Egyptian seals.In modern marketing, brand equity refers to the extent to which a brand's characteristics exceed expectations among other products in its category. A branded suit implies to the consumer a higher quality than an unbranded suit. In the early days of outlets, manufacturers ripped labels from items because they were reluctant to link their brand with the cut-rate price. But today many discounters do just the opposite, trumpeting goods under brand names to give the impression of quality while not necessarily backing that claim in a meaningful way. Online marketer eBay has tested the outer limits of this tactic by auctioning off brand-name merchandise at absurdly low prices.

In 2004 high-end jeweler Tiffany sued eBay in New York's federal court, claiming that 80 percent of goods sold on the site under the Tiffany label were fakes. In 2006, luxury purveyor LVMH filed a similar suit in Paris, claiming that up to 90 percent of Vuitton and Dior items peddled on the site were counterfeit. Four years later a Paris judge fined eBay almost 40 million euros ($63 million), arguing that the Internet auctioneer didn't do enough to stop the sale of counterfeit goods. The French court also ruled that eBay was not qualified to sell LVMH perfumes, which it said should be distributed only through selected retailers with trained staff. In New York a couple of weeks later, the Tiffany case was decided in eBay's favor; the judge made clear that in the United States it is the manufacturer's responsibility to protect its own brand, something that in the face of cutthroat price competition fewer and fewer manufacturers appear willing to do.

Do we shop at factory outlets and dollar stores and price clubs and eBay because we believe we are getting the genuine article, or is there something deeper involved? This question, Naylor said, has no sure answer, but she personally believes that most discount shoppers get something close enough to name brands to give them lasting pleasure. Apparently it is the brand, not necessarily authenticity, that discount shoppers are after. But when paying $250 for a briefcase or a handbag at an outlet, the question "When is a Coach not a Coach?" is more than a philosophical quibble.

Discounting dilutes brands, making it less certain that they are a mark of quality. This diluting effect has forced some producers to up the ante with premium versions of their brand-name products. For example, The North Face "Summit Series," designed for what the company describes as "the most demanding athletes and the most extreme conditions," is rarely if ever discounted, thereby maintaining its status. Hundreds of other brands from Levi Strauss to Mercedes-Benz slice and dice their offerings for various markets, selling different products in different types of stores for different prices under the same brand. This practice is pervasive at discount retailers. Chains such as Wal-Mart, Best Buy, Target, and Home Depot have items manufactured "to their specifications," meaning that the brand name is almost devoid of meaning. A television with a model number available only at Best Buy or Wal-Mart is -- no matter its apparent brand -- a Best Buy or Wal-Mart television. A lawn mower made to be sold only at Home Depot is -- for all intents and purposes -- a Home Depot lawn mower.

Brand dilution occurs in all the obvious places but also in the less obvious. Harvard University flaunts its brand to draw students to Harvard University Extension School, a program with no threshold to entry and a much smaller price tag than the institution to which it is tethered. Harvard University officials insist that extension school graduates receive an authentic Harvard degree, yet the education they have experienced, though presumably of high quality, is not really a Harvard education. By running a second-tier program under its name, Harvard is diluting its brand and in a sense counterfeiting itself.

Brands have become an end in themselves. Many of us who seek them have little if any idea of what's behind the name. But it is not the brand alone that entices discount shoppers; it is the high value we link to that brand versus the low price we pay that is so seductive. Spinning the wheel of low price is at best a gamble, but it is a gamble few of us can resist taking. The pull of markdowns, always seductive, has in recent years become an unstoppable force.


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