I see these advertisements on TV. They go something like this: Here is a gizmo that you can’t live without. It makes everything so much easier for you. Retail value is $69.95. However, if you order today on this limited time offer, you can buy one for $19.95. But wait! If you are one of the first 50 callers, you’ll get two for the price of one. Yes, two for the price of one! We’ll throw in this do-hickey for free as well. What an incredible value for just $19.95!
I wonder how many people fall for this story. Obviously a lot of people do fall for it or these companies would not be in business. Someone is thinking that they are saving $50 off the retail price, getting a second one, and a free side item to boot.
That $69.95 retail price is purely arbitrary. These companies are masters at making the price high enough that it is not absurd. At the same time, you, the unknowing consumer, think that you are saving $50.
These companies also use focus groups. They will take, say, 50 people and show them the proposed gizmo. At the end, they will ask their panel of 50 consumers: what they would pay for this: $5?, $20, $100? Based on what the focus group says, that is where they target their final price.
The truth is, you did not save $50. This company convinced you to spend $20 or more, because they sometimes like to hide their profits in the $5.95 shipping fee to you. They convinced you to spend money on something you might have otherwise overlooked. You think you made the deal of a lifetime. The company is happy that they got your money and made a healthy profit for their minimal cost.
Trust me; these companies are still making a healthy profit. Do you think they would be in business very long if they were losing money? No. Even with the “buy one get another one for free” and the free side item they are throwing in, they are still making a profit. Sometimes they are making obscene profits from what they are selling.
Sometimes you see this in stamps. “For just $19.95, you can own this fabulous set of stamps from Liberia. And we’ll throw in a set of Russian stamps too.” Maybe we need more advertisements like this to attract new collectors to the hobby. They will think they are getting something for nothing.
Personally, I don’t operate that way. I try to put a fair price on stamps that I think matches their condition and centering. I make a reasonable profit for my time and labor involved. You get a stamp that meets your expectations and budget. We are both happy. At least I hope you are happy with your purchase!
I would rather make a reasonable profit from my customers through straight forward deals. I can live without the hype and misleading customers into thinking that they are getting something for free.