PHONY PRICE-CUTTING: Threat to Advertising Confidence

COMBINATION refrigerator-freezer. Regularly $449.50. Now only $349.95.” Such price-cutting ads, often phony, are among the fastest spreading evils of U.S. merchandising. Once only fly-by-nighters in dingy back streets offered fake bargains. Today, in trying to keep up with the discount houses, even old established merchants resort to price trickery. The problem is so bad that the Federal Trade Commission last month came out with a nine-point “Guides Against Deceptive Pricing,” aimed at getting merchants and manufacturers to cooperate to force more honesty back into price advertising. Unless something is done, FTC Chairman John Gwynne told Manhattan’s Radio and Television Executives Society, retailers may wake up to find they have “destroyed the confidence of the buying public in all advertising.”

While the evil of fake price-cutting has spread into virtually every merchandise field, the FTC and Better Business Bureaus say that the practice is the worst on sales of refrigerators, stoves, television sets, mattresses and other household goods. Chicago’s Better Business Bureau recently checked 23 claims of bargains, found in all cases that the presale prices were fictitious. Most of the bargains sold for less or the same in other stores. A $289.95 advertised list TV set, for example, was “on sale” at $249.95 but could be bought elsewhere at $215.

Since customers are becoming increasingly suspicious of a store’s cut-price tags, many a merchant and manufacturer have joined up in a new scheme to fool the customer by promoting a “manufacturer’s list price.” The manufacturer advertises a “suggested retail price,” which is much higher than he expects the retailer to charge, tickets his merchandise or stamps the delivery carton with the inflated price. The retailer can then drastically cut the price, show the customer the price stamped on the original carton as proof of a huge bargain. One lawnmower manufacturer advertised last spring in a trade publication that his power mowers, which he priced in ads at $154.95, could be sold at $74.95—and the retailer would make the usual profit. A watchmaker preticketed a lady’s wristwatch at $200, a Detroit store sold the watch for $17.00. A blanket manufacturer offered retailers $24.95-list blankets that a retailer sold at $14.95; comparative shopping showed that they were not worth $10.00. One major mattress maker now gives his retailers a choice of three different list prices to be sewn to the ticking. Which preticket the merchant chooses depends on 1) what sales price he plans to ask, 2) how big a reduction he thinks his customers will swallow.

The blame for such tricky practices does not all lie on retailers. Everybody is a little at fault. Says Chicago B.B.B. Vice President Aubra Johnston: “The customer wants to think he drove a hard bargain. The retailer helps him kid himself. And the retailer and the manufacturer get together to back up their inflated price.” Many a merchant blames his competitors, says he would like to stop, “but I have to do it to stay in business.” In rare instances, store executives are hoodwinked by their own buyers. One San Francisco department store found its buyer offering ladies’ wool coats at “$14.99, formerly $19.95 to $25.95.” It turned out that every other store regularly sold them at $14.99. The buyer’s excuse: he wanted to make his department look good.

More and more customers are becoming suspicious of price cuts. A study by Pittsburgh’s Duquesne University shows that buyers strongly suspect claims of price cuts above 27.5%. Polks, a large Chicago discount house, recently got a shipment of $49.95 record players that really had listed for that. But when it put them on sale at $18, it made no mention of the old price because: “the comparison would not have been believed.” As a result, many stores are changing sales tactics. The J. L. Hudson Co., Detroit’s top department store, no longer allows “was-is” advertising in its newspaper or house displays; instead, it insists on such low-key language as “on sale” or “specially priced.” Downtown stores in Chicago, Milwaukee and Indianapolis have agreed to stop advertising comparative prices on mattresses.

In all this, nobody is aiming at the real bargain, such as the genuine month-end clearance, the special purchase, distress merchandise, the end-of-the-season markdown of broken lots. But what the FTC, the Better Business Bureaus and merchandising groups (such as the National Retail Merchants Association) want to end are the phony price-cuts. The merchants, many of whom have prodded the FTC to get tougher, feel that if they do not voluntarily police their industry, Congress will step in and do it for them—just as the Monroney law outlawed phony price-packing by auto dealers.