Category Archives: Retail Business

How Retail Stores and Restaurants Play With Your Mind to Get You to Buy More

Have you ever walked in to a store intending to buy one or two things and then walked out with five other items? Have you ever gotten home, looked at your purchases, and wondered what you were thinking? Chances are pretty high that you’ve fallen for some old retailing tricks that subtly encourage you to purchase much more than you planned to. 

Just what are those “tricks,” you ask? Here are eight of the most popular retail pricing and promotion strategies designed to get people to part with their money. The next time you go shopping in a retail store or order a meal out, see how many of these strategies you can spot: 

1. Prices that end in 9, 99, or 95

Ever wonder why so many items end in 99 cents? Do the stores really think that a penny will tip the scales of a purchasing decision? Well, actually they do. Known as “charm prices,” prices ending in 9, 99, or 95 make items appear cheaper than they really are. Since people in the Western world read from left to right, they are more likely to register the first number and make an instant decision as to whether the price is reasonable.

2. Prices without dollar signs

Ever been to a restaurant that leaves the dollar signs off its menus? They’re trying to make you spend more. In a Cornell study, the guests who were given a menu with only numbers and no dollar signs spent significantly more than those who received a menu with either prices showing a dollar sign or prices written out in words. Like the strategy above, retailers are hoping customers won’t associated the stated number with money, and thus will be more comfortable running up a larger tab. 

3. Dollars without cents

If you ever see a price tag or a menu where then prices are in rounded dollars, the retailer or restauranteur is sending the message that you’re in a high-end place. They are trying to imply: if you’re concerned about pocket change, then this isn’t the purchase for you.

4. The bulk sales trick

Stores often advertise deals like buy 10 items for $10 or 5 for $20. The goal is to get shoppers to buy the full number of items stated in the sale. These days, many shoppers may psychologically feel better about a purchase if they buy in bulk, because they may feel like they just maximized their savings. But if you know that you really don’t need those 10 items, then realize that often you don’t have to buy in bulk to get the deal.

5. Per-customer limits

When stores add limits to product promotions, like “limit 5 per customer,” they are tapping into some pretty powerful psychological motivators. People will be more likely to act when they feel a desired product is scarce and the deal is exceptionally good. Many shoppers fall for this one and end up buying several items instead of just buying the one that’s needed. 

6. The “free” promotion

Who doesn’t like free things? Retailers know that these days in particular “free” is the magic word. Those buy-one-get-one-free deals, free gifts with purchase, or even free shipping can sometimes be pretty irresistible and we can end up buying things we didn’t plan on purchasing.

7. Simple prices

In a strategy that differs a bit from the prices that end in 9′s or 5′s, retailers sometimes put simple prices on products that will likely be marked down in the future so that shoppers can quickly calculate how much they’re saving. It’s easy to compute the discount on a product originally priced at $60 that now costs $40, rather than an item originally priced at $59.99, now on sale for $37.99. 

8. Price Font Size

This one seems a bit counter-intuitive. Marketing professors at Clark University and The University of Connecticut found that consumers perceive sale prices to be a better value when the price is written in a small font as opposed to large, bold typeface. The reason: the larger the font, the bigger the price seems!

 

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How the Credit Card Industry is Sucking Small Businesses Dry

Earlier this year I posted a series on credit card reform and suggested that it would be a rough road ahead for many small business owners… unfortunately I was right.

Though the credit card reform act of 2009 may have put a spotlight on some of the obscure and outright abusive business practices embraced by the credit card industry, most of the attention has been duly heaped upon the consumer. But the truth is that small business owners are getting the worst of the credit reform fallout, and unlike consumers, they are being hit on all sides.

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In October, the National Small Business Association presented the results of a survey it conducted to determine the usage of credit cards among small businesses as a quick source of financing. It also provided a telling snapshot of the way credit card companies are treating their small business clients.

According to the NSBA survey, in April of this year 59% of small businesses have used credit cards to finance their operations in the past 12 months; this is up from 49% in December 2008. Underscoring the struggle of most small businesses to get adequate financing in an economy that has gone belly-up, this increase in credit card usage is occurring even as more small businesses report that credit card terms have gone from bad to worse. In fact, according to the NSBA survey in the last six months alone, 75% of the small businesses reported that their credit card terms had worsened.

One of the most difficult changes to swallow has been a flurry of credit limit reductions. In the past year, 41% of the small businesses surveyed stated that their credit limit was reduced- often without any overt reason. Not only do these credit limit reductions effectively reduce the amount of available financing, but they can also negatively effect a business’ credit score by creating a higher outstanding debt-to-credit ratio. Since the business is then considered to be more risky, it prohibits financing from other sources.

Other reported changes in credit card terms include: an increase in the interest rate (63%), switching from a fixed to variable interest rate (23%), and increasing the minimum amount due each billing cycle.

All of this comes at a time when fewer small businesses are paying off their credit cards each month. This year 40% reported paying their monthly credit card balances in full, down from 50% a year ago. And this is exposing countless small businesses to the same unscrupulous business practices that have gained so much attention over the last few months. Of those who carry a balance: 33% reported receiving statement after due date, 48% reported that the due date seems to randomly change, and 57% reported receiving statements too close to the due date to have it mailed on time.

What’s more, since some companies advertising business credit cards are in fact (according to the fine print) offering little more than a fancy personal credit card, such practices can be devastating to the business owner’s personal credit rating.

But the credit card industry does not stop there when it comes to small businesses… According to the survey, 57% of small businesses accept credit card payments from their customers. Each time a customer swipes a card to pay for goods and/or services, the merchant pays a small processing fee to the banks and and credit card networks. These so- called merchant interchange fees have tripled in cost since 2000 cutting into profit margins at a time when every cent counts.

Bottom line for small business owners: when it comes to the credit card industry, the cards are stacked against them.

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A Look at How Retailers Can Weather the Recession

According to recent research, retail sales have fallen over the last month even as the back-to-school shopping season gets into high gear, and industry forecasters claim that this does not bode well for the upcoming holiday season either.

 


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So the looming question for retailers big and small continues to be how to maintain or even increase sales in such a dismal economic environment.

A month ago I posted this article that briefly examined how some restauranteurs were managing to succeed despite the weak economy. In a similar vein, although the retail industry as a whole is suffering, there are several hot pockets of consumer spending that continue to draw brisk sales. A few big discount retailers, such as Wal-mart, have been able to capitalize on these trends and are focusing on several strategies to keep these consumer dollars rolling in.

Though small retailers may be more limited in their scope then the big discount chains, by studying their strategies, there are several valuable lessons that small businesses can learn and implement. Perhaps the most important of these strategies is that retailers are paying close attention to shifts in consumer attitudes and behavior and then adapting to them.

Here is a brief look at what some of the successful retailers are specifically doing:

1. Focusing on value. Today’s consumers are tech-savvy, bargain hunters looking for the best bang- i.e. value- for their buck. Retailers are concentrating their inventory on what people still need to buy, and then providing it at a low-cost or with some other added value, such as extensive customer support.

2. Promoting a unique brand. It has become increasingly important over the past two years for retailers to differentiate themselves and/or their products and services from those of their competitors.

3. Using aggressive, low-cost marketing tactics. The role that the Internet is playing in consumer decision-making and spending has not been overlooked by retailers, and it is all the more attractive given its low cost. Successful online marketing campaigns include: sending out emails, maintaining a website, offering online coupons, and registering with online directories and Point of Interest databases.

4. Offering promotions. The goal of a successful promotion is to get customers in the door where they will either spend money on other items or services or they will remember the experience and be more likely to frequent the business later on. Some promotion ideas include hosting or promoting events, offering a themed sale, or providing free products or services.

5. Focusing on customer convenience. Retailers are paying attention to how customers are choosing to make their purchases and then building up these areas. Are customers, for example, using cash as opposed to credit or shopping online as opposed to physically showing up at a brick and mortar location?

6. Initiating cost-cutting tactics and tight inventory management. Even the most profitable retailers out there these days are paying close attention to wasteful or redundant spending and are making sure that capital is not being tied up in unnecessary inventory supplies.

7. Forming partnerships. Some stores are forming partnerships with each other, whether banding together to pool resources or reduce overhead costs or offering discounts to each other’s customers.

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