The Problem with Fair Pricing
It's hard for consumers to know what is fair pricing. The price of a product is made up of so many factors, that calculating it is a job for economists. Customers, browsing a store, have no real way to measure how a product should be priced.
We do, of course, know that not all prices should end in 99 cents. That seems like a little too much of a coincidence. That must be a manipulation tactic.
Some of us have also figured out that many products seem to be perpetually on sale. or noticed that some department stores have 70% of their items on sale at any given time. This is another one of those manipulations. Our sale price is the real retail price, while the regular price is highly marked up.
We all hate this sort of thing, and wish shops just sold us products at fair prices, without all that manipulation. We know the item we're looking at on Amazon is not about to go out of stock. Why are all items telling us they are about to go out of stock?
This practice is called shrouding and is all about managing the information customers have about prices. Stores know how we love to get the best deals, so they hide little Easter eggs, such a coupons and sales, to make us keep coming back.
The JC Penney Problem
In 2012, JC Penney, a large department store chain in the United States, decided to change these practices. They created a pricing revolution called 'Fair and Square.' Under the new way of doing things, items would be priced in whole dollar amounts ($5 instead of $4.99), sales would be a month long price, and a bottom price would be a guaranteed lowest possible price (basically cost).
Moreover, JC Penney made their return policy as open as possible. Any customer could return any item to any store, at any time, providing it was in good condition.
This department store began treating its customers like the responsible adults they are. It was indeed fair and square, and failed spectacularly.
Punished for Doing Good
JC Penney saw a quick and consistent drop in their customer base. Within a year they had lost 1.5 million customers. The JC Penney stock value dropped from $42.68 in January 2012 to $5.64 in January 2014, and $3.88 in January of 2018.
The store collapsed and is currently hovering at less than 10% it's original value due to a company decision to be fair to customers. What went wrong? Why did customers leave the only fairly priced department store around?
Our Brain is the Enemy
Our rational brain wants fair pricing practices. This is our mind as it muses about life during the morning shower. No one is manipulating our impulses and and everything is crystal clear.
This is not the brain we go shopping with. The shopping brain is more like the mind of a forager looking for food in the woods. It is designed to run through the bushes, ignoring the mundane green foliage in search for a shiny red berry that might be hiding in it.
A coupon is even better. It lights up our shopping brain while it sits and reads the paper, making it begin obsessing about reaching the store before losing the bargain.
JC Penney's practices were objectively better for customers, but that's not what they felt like. They felt like running through the bushes and never finding that red berry. And as shoppers walked through other stores, they felt as though they were getting a better deal, though in reality, they were not.
JC Penney learned its lesson and returned to horrible pricing practices. Despite this, they never fully recovered. But this is not the lesson we, as designers, should learn. the right way forward is not price manipulation, but rather understanding why the manipulations works so well.
Our job is to design for the human brain as it is, rather than how we would like it to be. JC Penney should have made their shopping experience feel like a bargain, rather than only being a bargain. They could have hidden lowest price products among the regularly priced aisles, so customers get that rush when they find one.
Feed the brain that comes to your store, not the brain still taking a shower at home.