19 September 2010

Manipulative Pricing? FutureShop, WestJet, Chapters, and NCIX

Or perhaps this post should be called: "how not to manipulate price and avoid appearing slimy to customers."

As Canadians who fly a fair bit know, WestJet and Air Canada used to have pretty crazy seat sales, matching each other's prices, prices that change sometimes day to day, etc. Then recently, WestJet said they were getting rid of seat sales, citing customers being "frustrated at the unpredictability of fares" (WestJet scraps seat sales, reduces everyday prices).

That's one way to put it.  Another way would be that customers are frustrated at what appears as arbitrary manipulation of fares.

Skip over to FutureShop, where I was looking at Kaspersky Internet Security 2011. On their web site, they are selling it at $39.99 (which even qualifies for free shipping). Later, I find myself walking into their real-world store and find them selling it on the shelf at around $79.99, or around the price that it sells for from Kaspersky's online store. There is no obvious explanation that the price in the real-world store is going to be different than the price in the online store (and by that much!).

To me, that appears as arbitrary manipulation of the product's price.

Now to be fair, I'm not saying these price manipulations are bad or wrong in themselves. I suppose it's just what's called price discrimination. Many companies do that, including companies that I happily buy from who apparently has avoided making it seem slimy or outright manipulative to me.

For instance, Chapters sells books at different price points online compared to their real-world store. But notice how, as an example, they clearly state that this book 167 Tax Tips for Canadian Small Business has a list price of $26.95 and an online price of $17.78.  Clearly, their IRL price may be different (and actually, it seems that it often is).

Chapters actively avoid the appearance that their web store has the same prices as their real world stores. They're forthcoming in their presentation of their prices.  It can even seem plausible that the price online is different from their real-world store price, because of differences in customer service level, warehouse costs, shipping costs, cost of supplying toilet paper in the real-world store, etc.

As another example, NCIX shows the Mg Chemicals Compressed Air in Can as regularly $14.99. I went to their real-world store today to buy a few cans. Turns out they had an in-store sale, selling each for about $5 a can. According to the comments on the NCIX's web store page, they sometimes have sales like this of that product.

"But wait," you might say, "they're misrepresenting what is often $5 as selling regularly as $14.99. Had you bought online, you'd be out about $10!" Remember, though, that they are representing the reduced price as a special sale [1], not as the regular price. In fact, the $5 price wasn't advertised in store either.  I just asked for the product expecting to pay full price, but got a nice discount instead [2]!

Both Chapters and NCIX has avoided appearing manipulative to me by being upfront and clear that the price differences are either special occasions, or are simply consistently different pricing altogether. I realize a large part of it is probably just psychological, just differences in how the same price manipulations are projected to the customers, but between paying the same price and feeling cheated, versus paying the same price and feeling like I got a fair deal, I'd rather choose the latter.

So let's see what's really bothering me about the FutureShop and WestJet pricing strategy then. The problem is in the arbitrariness and what seems to me like a clear attempt at price gouging.

If a WestJet ticket sells for $110 one day, and then the exact same ticket sells for $250 the next day, it's pretty clear that WestJet is making an extra $140 on whichever sucker customer bought on the wrong day.  Obviously, supply and demand makes it so that each seat can, and in fact they already do, sell for different prices.

The price difference, however, should probably always go upward as the date of the flight approaches, until some hours before the flight takes off when the demand for that flight drops off, etc. The opposite seems to happen enough times, though, to make it apparent that the price is set more arbitrarily than due to real supply and demand pressures. In fact, if they really wanted to price it according to supply and demand, perhaps they should be selling tickets in auctions instead.

WestJet has reduced the number of seat sales though, so this issue seems less of a problem now. It's still an issue for me, as they still do change their prices around, but it just seems less of a problem as the number of seemingly random changes has decreased somewhat.

As for FutureShop, it seems to me they're price discriminating by guessing that those who walk into their store looking for that anti-virus software probably isn't technically savvy enough to buy it cheaper online. You might object by saying FutureShop is no different than Chapters in pricing the same product differently online versus "In Real Life," but that kite won't fly.

You see, when you buy from FutureShop, you can get it delivered, or you can choose to pick it up in the real-world store.  That means if a customer walked into the store, saw that software she wanted to buy, walked out to the Starbucks to get internet access on her laptop, buy that software online and choose to pick it up from that store, then a few hours later walk back to that very same store to pick up the software, she can get the exact same product for half the price!!

In other words, there is no plausible story to tell about cost savings or anything like that to explain the dramatic difference in price online versus in the real-world store for FutureShop, whereas there is such a story for Chapters (ie, toilet paper cost, etc).

But even if Chapters had the same in-store pick-up "delivery" option (I don't think they do, but let's pretend they did), the fact that Chapters blatantly state their online price is the "online price" makes a huge difference in my books.

To be clear, FutureShop does not actively misrepresent the price online as the real-world store price, as far as I know. I didn't read the fine-print, so for all I know, they state it clearly for everyone and their lawyers to see.  I'm just saying as a regular customer without a lawyer, looking just at the prominent price displayed, it brings to my mind the appearance that the price displayed is the same as the real-world store price. Perhaps I'm naive.

And to be clear, I see nothing inherently wrong with price discrimination either. All I'm stressing is that unclear and consistently seemingly arbitrary pricing leads customers, like me, to feel like something slimy and manipulative happened.  Clear, consistent, and forthright pricing, as exemplified by Chapters and NCIX makes me feel happier when I buy from them.

[1] At least that's what I was told by the customer service guy. The store I went to was more like a front to a warehouse rather than a regular retail experience.
[2] And now NCIX is getting good word of mouth I suppose...

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