Saturday, June 25, 2011

Respect Customers with Fixed Pricing

The respect found in a palace or temple.
     Wired has published a piece about a retailing innovation introduced by Alexander Turney Stewart in 1846—price tags. A. T. Stewart’s Marble Dry Goods Palace in New York City was unusual because of its huge size, offering both luxuries and commodities in the same store, and what is thought to be the first use in America of street-level plate-glass display windows.
     And those respectful price tags on the products. Mr. Stewart believed that the hard negotiating over price—at the time, the prevailing practice in NYC stores—left enough bad feelings among shoppers to interfere with customer loyalty. Most consumers viewed themselves as less skilled at haggling than were the retailers, who did it repeatedly each day, and so the consumers frequently came away feeling they’d been exploited.
     The Wired article says the introduction of fixed pricing was largely responsible for the rapid growth of Mr. Stewart’s retail enterprises. In 1862, he opened the Cast Iron Palace, which occupied a full city block.
     Although A. T. Stewart was a retailing pioneer in NYC, the attractiveness of fixed pricing began taking hold in London about 70 years earlier. Some retail historians consider Flint and Palmer’s, a clothing and drapery shop located on London Bridge, to be among the first merchants in Europe to maintain a no-negotiating policy. James Lackington’s Temple of the Muses, also in London, brought fixed pricing to book selling. Again, these retailers found that shoppers preferred this style of pricing. Even eBay says that fewer than one-third of their sales are currently being made via an auction format.
     Fixed pricing helps move shoppers beyond fixating on price. And moving beyond different fixed pricing on each single item is parity pricing, where a group of similar alternatives are all offered at the same price. Northwestern University researchers find that consumers are more likely to purchase certain types of items when presented with parity pricing because it eases the decision process. It is most effective as a selling technique with items for which the prospective buyer considers the purchase to be risky. This might be because the buyer believes the price to be high, which involves financial risk.
     Some shoppers won’t like parity pricing because they use price to make their decisions. Some shoppers will be attracted to the excitement of negotiating. But the evidence is that, overall, fixed pricing rules.

Click below for more:
Move Shoppers Beyond Fixating on Price

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