If you’re like me, you love finding a great deal. There's nothing more exciting than snagging a pair of designer shoes for 90% off at a thrift store or getting a subscription service at a steep discount on Black Friday. It feels like hitting the jackpot with all the money you’ve saved.

Most of the time, these deals are well-deserved. However, sometimes we fall victim to advertisers' tactics that make us think we’re getting a bargain.

For example, some retailers inflate prices just to mark them down on sale day. It’s called Anchor Pricing.

Is it unethical? I think so. Is it illegal? Unfortunately, not always. According to the Motley Fool, there are no laws preventing retailers from inflating prices on their items and then marking them down to create the illusion of significant savings.

This tactic isn’t limited to online shopping. Even trusted brick-and-mortar stores can have misleading pricing strategies.

The Details

Let me tell you a story about when I encountered anchor pricing this past weekend: My mom was visiting, and we decided to shop for a new coffee table for my home office. We saw signs around St. Louis about a popular furniture store advertising discounts of up to 40% off. Excited, we drove to the store. When we walked in we saw every piece of furniture had a crossed-out price and a new “discounted” price underneath. A salesperson even hinted they could do better than the bottom price. We were on our way to Dealville!

However, as we browsed, we noticed the furniture seemed way too expensive. My mom suspected they had marked up the prices just to mark them down again. I couldn’t believe this store would do such a thing. Skeptical but curious, I kept looking for the perfect coffee table. I found a table with storage originally priced at $2,608, marked down to $1,108. When I lifted the top to check out the storage capacity, I found the original price tag…for $899! They had indeed marked up the price to make the “discount” look impressive, but it actually cost more than the original price! To make matters worse, the online price was even lower at $649. We immediately left the store, and I vowed never to shop there again.

Other Pricing Tactics

In addition to price anchoring, retailers use various pricing strategies to create the illusion of a good deal to try and influence purchasing decisions. Here are some common ones:

1. Bait-and-Switch

   Advertising a product at a very low price to attract customers, but then pushing a more expensive item once you are in the store, claiming the advertised product is out of stock or inferior. For example, a store advertises a TV for $599, but when you arrive, they inform you that it’s sold out and suggest a more expensive model instead.

2. Bundling

   Selling multiple products together at a single price, suggesting a better deal than buying each item separately. This is common at technology stores offering a computer, printer, and software package for one price, even if you don't need all the items.

3. Drip Pricing

   Initially showing a low price to entice customers, but gradually adding fees (e.g., taxes, service fees, shipping costs) as you proceed through the purchase process. Your cell phone bill is a good example. It may cost you $50/month for a phone line, but by the time you get the bill, the total cost is more due to added fees. You also see drip pricing with airline tickets.

4. Decoy Pricing

   Offering a third option that is deliberately priced to make one of the other two options appear more attractive. For example, a coffee shop offers small, medium, and large coffee sizes. The medium size is only slightly cheaper than the large, making the large seem like a better deal.

5. Time-Limited Offers and Artificial Scarcity

   Creating a sense of urgency by indicating that a special price or deal is available for a limited time only or the product is in limited supply. I’ve noticed more recently that some websites are showing countdown timers indicating that the current sale price will expire in an hour or so, pushing you to make a quick, and perhaps suboptimal, purchase decision. Another example is when an online store indicates "only 2 items left in stock" to prompt you to act quickly.

These strategies can influence consumer perceptions and lead to higher sales, often without delivering genuine savings. Don’t be fooled by these “sales.” Always cross-check prices online and stay vigilant. If something seems off, consult your daily money manager.

Stay smart and happy shopping this summer!

Further Reading

CBS News goes into detail on which well-known retailers often have misleading deals: https://www.cbsnews.com/boston/news/consumer-expert-sale-prices-major-retailers-misleading/

This article is for general information purposes only. It is not intended to offer legal or investment advice.