When a retailer advertises the price of an item as a sale price, it generally anchors that promotion on a higher, regular price. So a sweater on sale for $20 is anchored, using a percentage or a numerical comparison, as 50 percent off its regular price of $40, for example.

But who decides what the regular prices are? If that product line of sweaters has literally never sold at $40 but instead has always been available at some lower price (whether $30, or the current sale price of $20, or maybe even $10), is $40 still the regular price? Legally, the practice of setting such deceptive reference prices is questionable, because it misleads consumers into thinking they are getting a deal. A recent class-action lawsuit thus brings claims against JCPenney, arguing that the sale prices the retailer promotes are actually just its regular prices, with “sale” stickers on them. They might list a higher price, but the retailer never earned those prices from consumers.

A survey of retail practices by several major retail chains suggests that JCPenney is far from alone in these tactics. According to Checkbook.org, some of the most familiar names in retail—not just JCPenney but also Kohl’s, Sears, and Macy’s, for example—engage in deceptive reference pricing constantly.

Macy’s and Sears both contest these accusations. Representatives from these companies note that their pricing strategies are complex and dynamic, such that prices change daily, depending on a multitude of factors that Checkbook.org might not have taken into account. Those factors include seasonal trends, customer responses, and product characteristics. The retailers also highlight that their pricing tactics purposefully are designed to enable them to offer discounts competitively and differently, such as special online- or in-store–only deals or member pricing for loyalty program members. Finally, they emphasize that they believe all their pricing methods are clearly and firmly in compliance with all applicable laws.

 

Discussion   Question:

1. What does the term “deceptive reference prices” mean?
2. Do retailers use deceptive reference prices? Justify your answer.

 

Source: Daphne Howland, Retail Dive, June 25, 2015