Consumer Safety & Awareness Part 5

The Four Steps

One of the most common scams, one that is totally illegal in every state, is called Bait and Switch. A simple definition of this is when a merchant advertises for a product at an attractive price knowing that no one will purchase it. There are two general reasons – either it will not be available or it will be of poor quality. The advertisement is the bait, to attract you to the store, so that the merchant can then switch you to a more expensive and more profitable item.

Former New York Attorney General, Elliot Spitzer, in a decision involving a Newburgh mattress company, provided the reasons why this technique is illegal. “My office is fighting to protect the integrity of the marketplace, to level the playing field for competitors and to ensure that consumers have clear, non-misleading information from which to make purchasing decisions.”

In order to sell a product, there are four steps any merchant, honest or not, needs to go through. The first is to get the potential consumers aware of the product. So many new items are introduced every week that it is generally impossible for people to know about even a fraction of them. This is why advertising is used. Ads are issued specifically to people who may use the product: a consumer buying in a supermarket, a merchant who might increase sales or efficiency by using it, a teacher who may find it easier to teach a concept through use of the item, or the United States Air Force which might employ the new product to more easily spot an enemy or to make it easier to shoot a target.

Once the consumers are aware that the product exists, the second step is to make them aware of the value of the product. We are faced with a huge selection of things that can satisfy our needs and wants. Why, then, should we switch from what we currently use, or from our traditional methods, to this new item? The merchant must give us a desire to try the product. Again, this step uses advertising.

You see it daily on television and print media ads. This new or improved, or larger item will make you more lovely, stronger, happier, healthier, better able to do your tasks, or more popular. These ads may appeal to vanity more than to logic. Consider automotive ads that use sex appeal to sell a hunk of metal. People will look up to you if you own this particular brand, your life will be easier, your ride smoother, you’ll have more leg room, or the vehicle will get better mileage.

You are now aware of the product and you recognize that it might provide some sort of benefit or advantage to you. All that does no good if the product is not available. One of the weaknesses of new technology, such as a cell phone, computer game console, or similar device, is that manufacturers need to sell it to the public before sufficient quantities of the product are on the market. Manufacturers can use that to their advantage, though, creating tension, the need to possess, and to be among the first. It really does not matter if the item is not yet fully tested, if there are known bugs, or if the initial selling price far exceeds the true value.

The last step in selling an item is making it available at an attractive price. Only the manufacturer, and other companies that make similar products, has any idea what it costs to make and where their sales tipping point is. This phrase has several meanings. It is commonly used to indicate the point where a product is considered mainstream, where the majority of the population sees a need for it. It can also indicate the zero profit point of an item, where all the costs added up come together and anything above that is profit.

Consider a teeter-totter, the children’s playground see-saw, or a balance scale. The tipping point is when the fulcrum is totally balanced. Move it a bit more and the balance swings to one side. To the left there is a financial loss, to the right a profit. Obviously the company does best when it makes the greatest possible profit.

Since the general public can only compare a new product to similar ones that already exist, they depend on the manufacturer, the advertisements, and the merchants to set a value on new or improved items. In general, the initial price, often called the “list price,“ is set considerably higher than it needs to be. The primary reasons given for this is that the company has put a lot of their own financial resources into development, paying for experimentation, testing, salaries, prototypes, and related expenses. To do so they have either borrowed money, and are paying interest, or have taken money from other areas of their business to pay for research and development. They need to recoup their investment and pay off their loans as quickly as possible.

As the product becomes more popular, and they can sell it in greater quantity, several things happen that help reduce the cost, lowering the tipping point. Mass production is less expensive than making fewer items. Shipping larger quantities to the same destination is less expensive. Fewer people are needed in the R&D aspect, so cost for salaries and benefits decline. As bugs are fixed, less money is spent on customer services. Inexpensive ways to produce the product are found. Parts, bought in larger quantity, also result in lower costs.

It is nearly impossible for anyone, including the manufacturer, to point to a time when they can lower the price they must charge and still maintain the profit level they need. It is just as hard to determine when the volume has increased so much that the company has what outsiders may consider excessive profit. A manufacturer will not lower a price until it is forced to, as indicated by a reduction in sales or a pending competitive product that may reduce its market share.

We now have the four steps needed to sell a product: awareness, desire to possess, availability, and acceptable cost.

Like honest merchants, scammers use these to get their marks to buy a product. In bait and switch, they offer something you are aware of, that you have a desire to own, that they make available to you at an attractive price. The problem is, they set out from the beginning to deceive you. There is either no product or the one offered is of substandard quality. The scammer has a solution: for a little bit more we can move you up to a product that is of better quality and is available. Their definition of “a little bit more,” though, may not be the same as yours.

Let’s get back to Attorney General, Elliot Spitzer’s mattress rip-off. Here is the actual decision from November 13, 2000:

Spitzer found that Resnick's Mattress Outlet, Inc., repeatedly ran advertisements offering specifically displayed mattresses for $29.95 to $59.95. When customers sought to purchase the advertised mattresses, Resnick's would discourage them by disparaging the quality of the mattress or by not stocking enough to meet demand. Resnick's sales people would then steer those customers to more expensive mattresses.

"Bait and switch advertising involves the advertising of an item at a very low price to lure consumers into the store and then switching the customer to a far more expensive model by stating that the advertised product is unfit or unavailable. It's an age-old sales tactic that gives an unfair competitive advantage to a business over its competitors by using false promises in its advertising to entice customers into its stores," Spitzer said.

The Attorney General found that Resnick’s advertising was misleading because it left the impression with consumers that all mattress purchases qualified for its advertised free frame, free delivery and free removal policy, when in fact, the offer did not apply to the advertised mattresses, but was limited to only certain specifically prepackaged mattress sets. Spitzer's office also found that Resnick's deceptively claimed that it would double someone's money back if a consumer could buy a mattress for less from a competitor within 100 miles. Resnick's stores are primarily stocked with mattresses manufactured by and exclusively for Resnick's stores. The few remaining non-Resnick manufactured mattresses carried in Resnick's stores are only rarely available at competitor stores within a 100-mile radius.

Most mattress company commercials use a similar ploy – they state they will give you a free mattress or additional cash, or something special if you can find the same mattress at a lower price anywhere else. For them it’s a safe bet. You see, all mattress companies put a different identification number on mattresses sold to different stores. They may sell the exact same product to Sleepeze, 1-800-Mattress, Macy’s, Penny’s, or whatever store you are dealing with, but each company receives its mattresses with a different code. Therefore it is impossible for a consumer to prove that the exact same mattress is being sold for less elsewhere.