Tuesday, May 29, 2012

Consumers Don't Want Clear Information

Depressing.  You know how lots of industries have sales and rebates and different rates that change for no reason (retail, hotels, airlines)?  That's called shrouding, and it's a way to keep consumers from comparing on price, because when consumers can compare on price, a race to the bottom ensues among competing businesses, which is great for consumers but bad for the competitors. 

So a major retailer (J.C. Penney) said, "We're going to try to stop confusing our customers," and started a campaign of honest, open pricing.  And it's been a disaster for them.  Consumers punish honesty.  What's saddest is that economists knew this already, from studies on the hotel industry. 

It turns out that politicians do exactly the same thing - shrouding their value to a voter by refusing to answer direct questions, like the ones at votesmart.org.  We can try to pass laws that keep companies (and politicians) from doing this, but as long as consumers and voters keep rewarding this behavior, it will keep happening.  This is exactly why education and critical thinking matter.

3 comments:

Artor said...

I think your conclusion is off. It's not that consumers don't want clear information, but that obfuscating things gives some companies an unfair advantage. I think it would be preferable if ALL companies presented clear information, allowing consumers to make educated choices. Unfortunately, when one company is unclear, people tend to extend the benefit of doubt and assume that they're being upfront. This gives an advantage over companies that actually are upfront, and present accurate information with no room for assumptions.

Anonymous said...

JC Penney didn't fail because of this policy. I loathe coupons, bait & switch, and paying a higher price for thing just because I didn't get the "code". It was a disaster because they decided to buy ultra low quality products/apparel. I was a consumer of JC Penny apparel & shoes. I went in to check out this new "honest" pricing. It sacrificed quality for low pricing. I guess I will have to shop exclusively at Kohls & Nordstrom Rack.

Michael Caton said...

If companies do get an advantage from confusing pricing, doesn't that mean consumers don't value clear information? There are other things making the connection less clear here (i.e. the quality) but it's been shown in other industries that in fact when companies are more direct in their pricing, there's a penalty.