Not all that glitters is gold. In a world driven by consumerism, understanding the price of products is paramount. But what happens when the price you see does not reflect its true worth? For the past fifty years, the Federal Trade Commission (FTC) has made a bold decision, trusting competition to ensure honest pricing among retailers. The reality? The unchecked proliferation of fictitious pricing, a deceptive dance of numbers designed to make sales seem more appealing than they genuinely are.
Imagine entering a store; your eyes catch a dazzling advertisement: a couch, seemingly discounted from $1,399 to a sale price of $599. Yet, this 'discount' might be nothing more than smoke and mirrors. There's a high possibility that the couch was never offered at the $1,399 price tag. This tactic, dubbed "fictitious pricing," has become the norm rather than the exception, with numerous retailers engaging in this manipulative marketing strategy. Research has shown that most advertised "sale" prices are merely a mirage, a bogus discount painted over a seldom-used regular price.
The FTC's Decision
About half a century ago, the Federal Trade Commission (FTC), once a beacon against deceptive business antics, chose to lessen its grip on pricing practices. They believed in competition's inherent goodness, hoping businesses would naturally keep each other in line. However, while competition did rise, it didn't play the watchdog role the FTC envisioned.
The FTC had initially based its leniency on two core assumptions. The first was the belief that consumers focus predominantly on the sale price, overlooking inflated reference prices. This, however, couldn't be further from the truth. Studies from the marketing and psychological sectors reveal that even exorbitantly exaggerated prices can significantly influence consumer decision-making. This is primarily due to the inherent human desire for a bargain.
The second assumption was that the market's competitive nature would naturally root out deceitful practices. But recent economic models suggest the contrary; increased competition has only emboldened firms to distort information to stand out, making deception more profitable as competition intensifies.
Big-Box vs. Main Street Shops
In today's retail ecosystem, the landscape has dramatically shifted. Gone are the days when Main Street stores were the epicenters of community shopping, where the local retailer knew your name and your family's history. Those personal connections once forged a bond of trust that transcended mere business transactions. When Mr. Smith from the corner store told you you were getting a good deal, you believed him. Not just because of the price tag but because you knew him – and he wouldn't want to lose your trust.
Enter the era of big-box retailers – vast, sprawling spaces offering a cornucopia of products at seemingly unbeatable prices. With scale, however, comes distance as these giants began to dominate, a chasm formed between the shopper and the seller. No longer was there a face you recognized behind the counter, someone with whom you might discuss your children's school achievements, or last weekend's community event. Instead, transactions became more impersonal, guided more by colorful price tags and less by interpersonal trust.
This detachment has made it easier for deceptive pricing practices to seep in. It's not about accusing the big-box stores; they've brought convenience and variety in many ways. But the vastness of their operations and the distance from their customer base often means less accountability on individual transactions. A few unhappy customers could build or break a Main Street store's reputation. In contrast, big-box retailers will not similarly feel the pinch of a few disgruntled voices.
The allure of "discounts" and "savings" in big-box stores, while enticing, sometimes plays into this game of smoke and mirrors. The bigger the store, the bigger the spectacle, and it's easy to get lost in the maze of deals without stopping to question their authenticity. It's also worth noting that the ubiquity of such stores means they set the tone for retail standards. If they champion fictitious pricing, smaller players might need to follow suit or risk being overshadowed.
Ultimately, it's not just about where we shop but how we shop. Being informed, asking questions, and understanding the value of trust can make all the difference in ensuring that the reality of retail is as genuine as it promises to be.
The True Normal Price (TNP): A Way Forward
A more innovative approach is necessary, given the limited impact of lawsuits and state-level regulatory efforts. Enter the concept of True Normal Price (TNP). Joe Urbany, professor of marketing at the University of Notre Dame, and colleagues suggest that retailers should be mandated to display the TNP of an item alongside any promotional prices. The TNP reflects the most common price for a product within a specific timeframe. So, if our hypothetical furniture store pushes the $1,399 price for two weeks but advertises a sale for the next ten weeks, the average price in subsequent promotions should be listed as $599, the actual regular price.
Research with 900 participants showcased the potential efficacy of TNP information. This simple yet impactful disclosure nearly eradicated the influential power of an advertised regular price.
Industry Response and the Road Ahead
Conversations with senior retail executives unveiled a spectrum of attitudes. While some executives expressed enthusiasm for interventions, hoping to temper an "out-of-control" promotional climate, others hinted at possible resistance. The broader implications of TNP disclosure could lead to more transparent pricing practices, potentially reshaping market prices, promotional trends, and overall company profits.
Our market, driven by competition and consumer behavior, is at a critical juncture. The pervasive practice of fictitious pricing initially believed to be self-regulating, has flourished. It's a reminder that sometimes, our assumptions need revisiting. While challenges lie ahead, introducing the True Normal Price could be the beacon leading us toward a more transparent and honest retail landscape. After all, in an age of information, the truth should never be a luxury.
However, challenges remain. Introducing new regulations often sparks debate and resistance. Still, one thing is clear: it's high time for clarity in pricing. For consumers, understanding the actual value of their purchases is not just a right but a necessity for a fair market. The time has come to shift from a world of illusionary discounts to genuine value and honesty.
About the Author
Robert Jennings is co-publisher of InnerSelf.com with his wife Marie T Russell. He attended the University of Florida, Southern Technical Institute, and the University of Central Florida with studies in real estate, urban development, finance, architectural engineering, and elementary education. He was a member of the US Marine Corps and The US Army having commanded a field artillery battery in Germany. He worked in real estate finance, construction and development for 25 years before starting InnerSelf.com in 1996.
InnerSelf is dedicated to sharing information that allows people to make educated and insightful choices in their personal life, for the good of the commons, and for the well-being of the planet. InnerSelf Magazine is in its 30+year of publication in either print (1984-1995) or online as InnerSelf.com. Please support our work.
Creative Commons 4.0
This article is licensed under a Creative Commons Attribution-Share Alike 4.0 License. Attribute the author Robert Jennings, InnerSelf.com. Link back to the article This article originally appeared on InnerSelf.com
Recommended books:
Capital in the Twenty-First Century
by Thomas Piketty. (Translated by Arthur Goldhammer)
In Capital in the Twenty-First Century, Thomas Piketty analyzes a unique collection of data from twenty countries, ranging as far back as the eighteenth century, to uncover key economic and social patterns. But economic trends are not acts of God. Political action has curbed dangerous inequalities in the past, says Thomas Piketty, and may do so again. A work of extraordinary ambition, originality, and rigor, Capital in the Twenty-First Century reorients our understanding of economic history and confronts us with sobering lessons for today. His findings will transform debate and set the agenda for the next generation of thought about wealth and inequality.
Click here for more info and/or to order this book on Amazon.
Nature's Fortune: How Business and Society Thrive by Investing in Nature
by Mark R. Tercek and Jonathan S. Adams.
What is nature worth? The answer to this question—which traditionally has been framed in environmental terms—is revolutionizing the way we do business. In Nature’s Fortune, Mark Tercek, CEO of The Nature Conservancy and former investment banker, and science writer Jonathan Adams argue that nature is not only the foundation of human well-being, but also the smartest commercial investment any business or government can make. The forests, floodplains, and oyster reefs often seen simply as raw materials or as obstacles to be cleared in the name of progress are, in fact as important to our future prosperity as technology or law or business innovation. Nature’s Fortune offers an essential guide to the world’s economic—and environmental—well-being.
Click here for more info and/or to order this book on Amazon.
Beyond Outrage: What has gone wrong with our economy and our democracy, and how to fix it -- by Robert B. Reich
In this timely book, Robert B. Reich argues that nothing good happens in Washington unless citizens are energized and organized to make sure Washington acts in the public good. The first step is to see the big picture. Beyond Outrage connects the dots, showing why the increasing share of income and wealth going to the top has hobbled jobs and growth for everyone else, undermining our democracy; caused Americans to become increasingly cynical about public life; and turned many Americans against one another. He also explains why the proposals of the “regressive right” are dead wrong and provides a clear roadmap of what must be done instead. Here’s a plan for action for everyone who cares about the future of America.
Click here for more info or to order this book on Amazon.
This Changes Everything: Occupy Wall Street and the 99% Movement
by Sarah van Gelder and staff of YES! Magazine.
This Changes Everything shows how the Occupy movement is shifting the way people view themselves and the world, the kind of society they believe is possible, and their own involvement in creating a society that works for the 99% rather than just the 1%. Attempts to pigeonhole this decentralized, fast-evolving movement have led to confusion and misperception. In this volume, the editors of YES! Magazine bring together voices from inside and outside the protests to convey the issues, possibilities, and personalities associated with the Occupy Wall Street movement. This book features contributions from Naomi Klein, David Korten, Rebecca Solnit, Ralph Nader, and others, as well as Occupy activists who were there from the beginning.
Click here for more info and/or to order this book on Amazon.
