Issue link: http://www.e-digitaleditions.com/i/56065
Albers Leads, Connects, Serves UPCOMING & ONGOING At Seattle University's Albers School of Business and Economics, students develop intellectual excellence that is respected in the business world. An Albers education extends beyond the classroom; students have opportunities to learn from the knowledge and guidance of experienced business leaders. Following the Jesuit tradition of educating the whole person, our students develop strength of character and compassion in all aspects of life. This foundation of ethics and social responsibility prepares them for ethical leadership in business and the community. #24 U.S. News & World Report Part-time MBA #25 BusinessWeek Part-time MBA Great Sales Don't End— They Just Fade Away Two researchers have advice for retailers: Keep price increases gradual after a sale. Michael Tsiros of the Uni- versity of Miami School of Busi- ness in Florida and David Hardesty of the University of Kentucky's Gatton College of Business and Economics in Lexington find that retailers can increase sales and profits after a sale if they return to original prices gradually rather than all at once. Stores traditionally use one of two methods of sale pricing: Everyday Low Pricing (EDLP), a method championed by Wal-Mart that fea- tures regularly low prices with few sales, and Hi-Lo pricing, a method in which stores discount items during a sale, but revert to original prices at sale's end. However, the researchers recommend a different strategy they call "Steadily Decreasing Discount- ing" (SDD), in which stores progres- sively move pricing back to original levels after a sale. "SDD avoids a key problem of the Hi-Lo strategy—the big dive in sales at the end of the promotion," says Tsiros. In one field study, the researchers tracked the sale of a wine bottle stop- per for $24.95 in an upscale kitchen appliance store. The store alternated between SDD and Hi-Lo pricing every week for 30 weeks. With SDD, the store offered 30 percent off the first day, 20 percent off the second, and 10 percent off the third. With Hi-Lo, the store held two different sales—in the first, it offered the stop- per for 30 percent off for two days, before returning to full price; in the second, it offered 20 percent off for three days, before returning to full price. Hi-Lo pricing increased sales by 63 percent in the first scenario and 75 percent in the second; it increased profits by 5 percent. SDD pric- ing, however, boosted sales by 200 percent and increased profits by 55 percent. SDD is more effective than either EDLP or Hi-Lo pricing because con- sumers hate to miss a lower price on an item, say the researchers. If shop- pers see the price steadily increas- ing, they are more apt to purchase. But that effect disappears in Hi-Lo pricing—if say, the price of an item jumps to $100 from $50 after a half- off sale—because the opportunity to buy low already has passed. "SDD could be particularly effec- tive in the current economic down- turn," says Tsiros. "Many retailers have been offering discounts of 60 percent or even 80 percent, and stores can't offer those prices forever. But if they bring prices back up in increments, consumers will have time to adjust." "Ending a Price Promotion: Retracting it in One Step or Phasing it Out Gradually" was published in the January issue of the Journal of Marketing. n z BizEd MARCH/APRIL 2010 51