Finance:High–low pricing

High–low pricing (or hi–low pricing) is a type of pricing strategy adopted by companies, usually small and medium-sized retail firms, where a firm charges a high price for an item and later when the item's popularity has passed, sell it to customers by giving discounts or through clearance sales. The basic type of customers for the firms adopting high–low price will not have a clear idea about what a product's price would typically be or must have a strong belief that "discount sales = low price" or they must have strong preference in purchasing the products sold in this type or by this certain firm.

Usage

There are many big firms using this type of pricing strategy (ex: Reebok, Nike, Adidas). The way competition prevails in the shoemaking industry is through high–low pricing. Also high-low pricing is extensively used in the fashion industry by companies (ex: Macy's, Nordstrom) This pricing strategy is not only in the shoe industry but also in many other industries. But, in these industries one or two firms will not provide discounts and works on fixed rate of earnings those firms will follow everyday low price strategy in order to compete in the market. People are lured into buying products that employ this strategy simply because sales of any kind attract the consumer's attention, and thus, makes him/her more inclined to buy said product due to the "sale". However, some consumers will see past this strategy by instead looking at the actual price of the item and comparing it to other items which are not on sale. This (in most cases) will reveal that the 'sale' is simply a case of high-low pricing.

An alternative way of using the high–low pricing method involves inflating the price for a short time, after which the discounted price is introduced. One of the unethical aspects of the high–low pricing occurs when sellers inflate the original price, sometimes by up to 500%, only to bring it back down as the “sale” or “discounted” price, which is closer to the appropriate price. When the prices are reduced to the “sale” price, they often remain at the discounted level for a considerable amount of time, sometimes longer than two weeks, at which customers may begin to question the validity of the reduced price. Artificial sales of this sort are illegal in the United Kingdom.