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What happens when you buy something today, that goes on sale next week?

24 April 2010

It has happened to everyone. You buy something expensive, and 2 weeks later it is on sale. Not just on sale, 50% off. What do you do? You don’t have to curse at yourself for having the worst luck in the world. There are some options for you…

Exchange and refund from customer service

Solution 1 – Price Matching Policy

The first thing you can do is ask to get back the difference from the retailer. In most cases, store managers are people with feelings. There are exceptions. Stores often have a 14 day price matching policy that will give you the difference if the item goes on sale, or if a competitor sells the same item at a discount. These apply to electronic stores like Best Buy and FutureShop. If the store doesn’t have this kind of policy, it doesn’t hurt to speak with the manager and try your luck.

Solution 2 – The Gap Promotion?

Then there is Gap’s solution. In Summer 2009, Gap launched a campaign aimed at people who have found themselves in the above situation. Here is an overview of the Sprize (aka Splurge Insurance):

  • You buy clothes at full ticket price
  • If the item goes on sale, you automatically get the credit back

This seems like a simple win-win situation that resolves the problem of consumers buying an item at the wrong time. But I would consider it a BIG WIN for Gap- small win for the consumer. It is important to remember that marketing will always influence your decision for their own benefit – which may or may not benefit you.

Here is what I think of the promotion’s behavioural economics:
Shoppers come in all shapes and sizes… and spending habits! When it comes to spending habits shoppers fall into one of the categories:
Trendsetters, mass market and bargain hunters shopping curve.

  • The Trendsetters – Trendsetters aren’t afraid to put fashion above cost. Paying full retail price is not a problem, as they have a look to maintain. These are the same people you don’t want to give a credit card! Trendsetters don’t have to be fashionistas like Paris Hilton. Apple geeks who wait outside an Apple store for the new iPad also fall into this category.
  • The Mass Market – The Mass Market is where most people fall. They usually won’t buy something when it is new, and they generally wait for reasonable sales like 10-25%.
  • The Bargain Hunter – Finally, there are the bargain hunters. Bargain hunters do not accept paying full retail price. They scavenge stores for items that have clearance prices.

(Note: The three tiered category is nothing new, especially when discussing technology diffusion. Check out Simon Sinek’s TED talk to get an overview .)

The Gap promotion I described is meant to make more money from the shoppers in the mass market. Trendsetters are already paying full retail price, and stores aren’t interested in penny pinching bargain hunters. The promotion aims to entice mass market shoppers to buy something they were inevitably going to buy, and giving a false sense of certainty that they will get money back when it does go on sale. After all, they have seen items all go on sale sooner or later countless times.

Merchandise at a clothing store like Gap is meant to sell. Quickly. After all, stores need to replenish their stock for spring, summer, fall, and winter clothing. (Even though there is almost no difference in temperature between spring in fall in many cities). Retailers will began by selling at a full ticket price, and as the demand falls, they place permanent markdowns. If everyone falls for this promotion, Gap has no need to reduce the prices for people like bargain hunters. On the other hand, if only a few mass market shoppers are “enticed”, Gap must follow its regular routine to cut prices and offer automatic credit.

Tragedy of the Commons

This promotion is a modified version of the Tragedy of the Commons wiki icon. Imagine there is a public pasture that is shared by 10 local herders. Each local herder is allowed to have five sheep graze on the land. In total, the field has a capacity of 50 sheep. Overnight, one of the herders decides to add five more sheep to the pasture. Two things happen:

  1. The cheating herder receives a financial gain
  2. The pasture is slightly degraded by each additional animal, and the collective group suffers

If everyone buys Gap clothing at full price, all the consumers are in a losing situation as Gap has no reason to offer more sales. On the other hand, if there is a daring shopper that buys at full price, and no one follows suit, the lone shopper reaps the benefit of securing the item and paying the same price when it goes on sale.