It's common these days to go to the supermarket and find promotions on products that can go from 50 to 75%. How is this possible and what are the reasons for this? If they can make these promotions, why do they make the prices usually so high? I've checked the validity dates and they are still big, so that is not the reason.
It can be one of many things. Supply and demand. Usually stores will have so many products that they need to get it out of their warehouses. For example, if an electronics store has a lot of iPhones and their warehouses are filling up, they might want to announce an iPhone sale just to make room and get rid of all the stocks. It can also be that the demand for that particular product isn't too high and the supplies are getting high also. If there are more demands for the product they will have to raise the price if the supplies are getting low (but even if there is enough supplies they still maintain the price for profit and will lower it once the demands get low enough)
The idea is to get you in the store. Especially in a supermarket, it's damn near impossible to go shop for just one thing or just go get the promotional item that is a really good deal. You start thinking "Well, since I'm here, I may as well do a full-shopping run" and you all of sudden have a $100 grocery bill when you originally just went to go get the 1 item. Another thing you'll notice is that these promotional items are often in the back of the store or near the end of the isle so you have to walk through the store to get to them. That catches your eye as well and leads to buying more items you might not originally have bought.
The grocery near my house does this when they have a lot of a certain product and no one is buying it. For instance, they sometimes hold clearance sales for imported cookies and canned goods. Another reason could be the expiration date. I notice this with chips and bread.
My partner used to sell furniture in the UK. Provided a product has been at a particular price for at least one day, then in future it can be sold for much less in promotions. Therefore, furniture companies hike up the price of a piece of furniture for one day so that they can then sell it in promotions. People are led to believe they are getting 50-75%. In theory, they are getting this amount off the previously listed price. However, they are probably paying what the recommended retail price is anyway. It is just one of the sales techniques used in the furniture industry. As far as I know, in the Uk supermrkets and other retail outlets can also employ this tactic.
They usually do this at the point where they're trying to clear inventory. They need to bring in new stock and they're just trying to get rid of what's left of the old stuff. They may not make a huge profit on these items, but they can sell them for close to cost just to move the product out, which means they're not losing money either.
There are some products that are almost always 50% or more off. A good example of this would be Soda. I know it's way overpriced here compared to what you're used to I'm sure, but for a 2L bottle of Pepsi, it can be over $2.50 a bottle at regular price, but almost every other week you'll get it at 4/$5 or better. Some of the grocery chains use these tricks to artificially appear to be providing savings. There are always loss leaders too, which bring people into the store for a single item that they lose money on knowing they'll buy a lot more.
Its all part of marketing strategies, the dates on which it happens, like spring, fall deals and so on. They also need to bring in new stock and sell the old remaining merchandise faster and so on. It really depends on a lot of factors.
So, there are a number of ideas why this happen, I think that it can be like you said to clear inventory, to get me in the store or to make me try a new product, either cases it's pretty awesome to "buy" the product we need and still bring money home, I wish this could happen more often.
I've heard of there being big sales on various chicken parts such as breasts and thighs around the time leading up to Superbowl Sunday. Supposedly the reason is that they have to buy up so many whole chickens and break them down just to get enough buffalo wings to sell to the customers, that they are stuck with a lot of other chicken parts that aren't going to sell in time, so they need to mark them down steeply. I don't know what the markup is at grocery stores, but I would assume it is somewhat high due to all the perishable items they have to dispose of regularly. There are some cooks who have even formed restaurants around using up discarded food from grocery stores - stuff such as veggies that are otherwise fine but wont sell due to a blemish on them. When I worked for a local independent gift shop, the owner would mark up all her merchandise by 300%. Part of that was to cover the cost of the item itself, the other was to re-stock the item, and the last third was the profit on the item. At a frame shop I worked at they simply marked up all the supplies for the order by 30% and added on the cost of labor. So if a framing order cost $100 in parts, they would charge about $150 or so for the artwork to be framed.
That can happen as well, if a lot of quantities are bough I guess that their margins are also higher. The latest products I had those huge discounts was on the Lion Cereal box from Nestle (I guess it's relatively new here so they wanted us to try it) and some fancy shampoo for the wife that she had that 3€ voucher.
I agree that it is probably to lure you into the store. Another reason could be that the company (Nestle) will reimburse the store for the coupon cost in order to get you to try the cereal for free. They want you to try the cereal and if you like it you'll become a regular customer.
Yep, those coupons are money to the stores, that is not debatable, it's written on them. When I see these massive discounts it does make me wonder though, if they can cut the prices like this, what are their margins? How much are they making at my expenses to be able to cut the prices like this?
Most supermarkets make profit by selling many cheap items (volume), not by selling a few expensive ones. Shelf space is important, they got to constantly change items and find what sells - what's the point of keeping month old products on the shelf if they don't sell? Cut the price and get rid of them. Another reason for price cuts, that I observed: I was buying carrots one day and I noticed the price was 75% off. Why? The carrots where the last, the ones that remained after the rest were sold, small and ugly they were, so in order to sell and make some money back they cut the price wayyyy down.
At my store, they will have different things on a discount each week, because they know that certain people will be attracted by the offer, and will then choose to come and spend money in their store. Personally, I am getting good at stocking up on things when there is money off, and this means that I only ever buy the majority of things when they are cheap. Obviously there are some things that you can only buy fresh, but there are lots of things that have long dates, for example cupboard foods, or that you would be able to freeze to use later. Sometimes I don't have to go shopping for a few weeks when I have stocked up on things that have been on offer, because I find that I have more than enough for my meals.
I saw a 66% off just a few days ago. I think these offers are loss leaders. Meaning they intentionally don't make a profit on this item to draw you into the store in general. Once inside they hope you will spend more on other things than they lost on this one item.
Yeah, just recently one store had a huge fine because they were selling below the cost of production. I don't know how they are able to do that, most likely they just invest in cutting the price instead of advertising, so I don't agree that this practice is forbidden, they should allow it if no one is really losing.
Stores can get desperate to sell goods if they're not moving. From what I've heard, many stores receive the items they sell at 20% of the price they market it for. Anything up to that 80%off mark is still a profit. If need be they can sell just to split even with their initial cost for the product.
Sometimes stores get large shipments of things and they end up not selling as expected, so they have to get rid of the back stock in order to have room for new items. Sometimes brands will have promotional prices to get the public to try their new product, or a product whose sales are lagging, in hopes of generating more interest in it and boosting sales again. Some large grocery stores are able to order massive quantities of an item and by doing so, get an exceptional deal on it and save in shipping costs, and thus they are able to pass along the savings to the buyer. In some cases I am skeptical when it's a company I don't think has the highest standards. Things like dry cereal for instance are incredibly overpriced when they are not on sale for a steep discount.
There is usually one of two things going on here (sometimes both). 1) They are clearing out old, unbought stock to bring the new season's stock in. Since they've been able to sell the old stock at such a price, reducing it will cut their losses. 2) The original stock that is being put "on sale" was overpriced to begin with and wasn't really the price at which the store was actually intending to sell them at. Thus, although it may seem like it's on a great sale, you have to be wary of this one.
