The deep discount retailer Fred’s already lists low prices in its stores, which span the southeastern United States. But to appeal even more precisely to consumers’ price preferences, it also has adopted an innovative “Closeout Bonanza” pricing concept that ensures it moves inventory, even while it gives shoppers a fun and entertaining way to grab deals.
Each Friday night, the stores assigned to feature Fred’s Closeout Bonanza get restocked with brand new products. The products change week to week, depending on what inventory Fred’s has left from its traditional stores or what special deals it might get from suppliers. When the stores open on Saturday morning, each item is priced at $9.99. This price point usually represents a pretty good deal already, so shoppers start purchasing. For example, one recent bonanza featured name-brand coffeemakers, a Fitbit flex 2 model, and an Otter-branded phone case, each for less than $10.
Then on Sunday, everything gets marked down to $4.99. By Monday, the items cost $2.99; on Tuesday and Wednesday, the remaining inventory is priced at $1.99. On Thursday, it drops to $.99; on Friday morning, everything left is just $.19. And then Friday night rolls around, and Fred’s restocks with an entirely new set of inventory.
To keep the system running, Fred’s mandates that there may be no pushing or running in the stores. Consumers may not open packages, nor do they have the option to return items once they have purchased them.
For price-conscious shoppers, Fred’s Closeout Bonanza makes its effort to appeal to their precise preferences clear. Do they want to come early for the best selection? Then Saturday is their day. If instead they want deeper discounts and smaller crowds, they can take their chances and wait until Thursday.

Discussion Question:

1. What is this pricing strategy called?
2. How does this pricing strategy affect the financial ratios in the strategic profit model in Chapter 6?
3. Identify any potential problems associated with this strategy, in terms of maintaining adequate inventories.

 

Source: Tom Ryan, Retail Wire, August 7, 2018