I love a bargain!  Almost everyone does!  This brings up an intriguing question--what is a bargain?  I define it as getting something for less that it is worth.  Pretty vague, right?  It's exceptionally difficult to assign a value to merchandise without context clues.  Freakonomics Radio illustrates this point in the podcasts "Do More Expensive Wines Taste Better?"  The answer is, yes.  http://www.freakonomics.com/tag/wine/  Essentially, the beautiful label and the critics' praise for a vintage influence the drinker's perception of what is in his glass.

Just like when we enjoy a bottle of wine, we look for context clues when shopping.  What should a t-shirt cost?  How do I know if I am getting a good deal?  One way to assess this is to evaluate the original price (what an item is purportedly worth) compared to the current retail.  The original  price, or MSRP (manufacturer's suggested retail price) is the anchor price.  I evaluate the fairness of the price I will pay relative to the anchor price.

Kohl's has mastered this strategy of anchoring a high price and aggressively discounting, resulting in tremendous success for the mid-priced retailer.  The store is full of percent-off and discount signs, and the newspaper often boasts additional discount coupons.  Frequent shoppers (VIPs) can save even more by stacking additional discounts and earning discounts on future shopping trips.  Consumers generally evaluate the fairness of the current price through the lense of the original retail.

For instance, a t-shirt is priced at $20.  I note it is 50% off and am excited to purchase it for $10.  I may even tell people what I great deal I got.  However, if the original retail was $10 I may have passed over the shirt with the assumption that a $10 shirt won't hold up.

I read a study recently that awarded Kohl's the distinction of consumer's favorite place to shop for baby and kid's clothes.  When I compare the Kohl's shopping experience to Old Navy and the big box discounters (other top destinations according to the study), I suspect Kohl's use of high anchor prices combined with aggressive discounting has been the key to their success.  The ability to create the perception of a higher value product for a fair price is their competitive advantage.

JC Penney announced last week that going forward each item will be tagged with its current retail.  Currently signs indicating percent-off discount clutter the store.  Shoppers have a hard time deciphering what an item will cost.  I am interested in how JCP will execute this and what impact, if any, it will have on shoppers' value perception at JCP.