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Personal Finance

Dilemma of posted prices in stores

A shopper
A shopper. FILE PHOTO | NMG 

Meandering through the labyrinth of Nairobi furniture retailers along Mombasa Road, one experiences eye-popping vivid contrasts of designs, styles, colours, fabrics, and wood.

Enter one store and find well-organised rows of furniture options with well-placed visible price tags. Then spend hours pondering price combinations of furniture parings.

Arrive in a different store and unsettlingly discover no marked prices on any merchandise. A receptionist directs patrons to inquire from roaming sales agents if desirous of price details on any item. It could take hours just to gain an understanding of what all the prices are per furniture category that interests a buyer.

Then, all those prices must lodge in a shopper’s short-term memory. Which style of price posting works better to boost profits of retailers?

As we commence our long road to coronavirus economic recovery, many Kenyans now venture out into shops, malls, and stores, increasing spending consumption in this third quarter over the second calendar quarter.

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In venturing out to shop and noticing throngs more consumers also out and about compared to months ago, we face different types of stores when purchasing big-ticket items. Some stores post their prices on items and some instead encourage buyers to ask sales agents for prices.

Extensive research exists on the effectiveness of posting prices on merchandise.

Scientists Laurent Muller and Bernard Ruffieux show how consumers logically ascertain their own price perceptions of products against the posted price tags on merchandise to uncover their willingness to pay.

Business researcher Guofang Huang uncovers how for larger priced merchandise, the dominant players in an industry gain profit advantage from posting prices and then not allowing haggling and negotiating, whereby smaller retailers can gain profit share by posting prices then encouraging negotiations.

Vivian Own and Joseph Wang delineate how often people prefer the higher posted priced good or service because they perceive it with better quality even if the belief is unfounded in reality.

VISIBLE TAG

Retailers usually post their prices in four different categories. First, all item prices are marked, visible, and fixed. Second, all item prices are marked and visible, but negotiating and haggling for lower prices than the visible tag is tolerated. Third, all item prices are also marked and visible, but negotiating is actively encouraged. Fourth, no prices are posted and no list or menu of items and prices are shared, thus creating an inquiry and negotiation on every product.

Store owners who opt for the fourth option generally believe that their profits trend higher by requiring sales agent interactions and negotiating as opposed to posting prices. They expect their agents to size up potential customers and maximise return.

However, psychologist Utpal Dholakia explains how negotiating takes extra effort on the part of consumers and many will feel exhausted and not make the effort.

VISUAL SPECIES

Humans thrive as a visual species with up to 85 percent of sensory input impacting cognitive decisions originating from sight. In walking around a store, people can quickly and efficiently visually scan prices, compare, and make decisions with relative ease instead of stopping and asking a question as to the price of every single item.

Further, consumers question the fairness of the price quotes they receive from sales agents in stores with no posted prices. Is one obtaining a fair deal? What is the lowest price one could have gone down to? Is how one dresses affecting the price the sales agent gives?

The doubt mixed with extra effort to inquire and negotiate on every item significantly reduces consumer purchasing desires.

Business owners must decide. Posting prices in retail stores can increase the length of time a shopper takes and heighten purchase intentions.

Meanwhile, no posted prices and all haggling may reduce the quantity of sales but increase the profit margin on the sales that do occur.

Dr Scott may be reached on [email protected] or on Twitter: @ScottProfessor

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