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A Lay-up for Lay-away

Toys R Us has introduced a lay-away program for large ticket items that they sell. These items include bikes, dollhouses, play kitchens, car seats, cribs, strollers and other expensive items. This new program from Toys R Us follows successful similar initiatives by Sears and K-Mart last year.

Lay-away programs have been relatively scarce for the last forty years. They were popular during the Depression. However, over the last couple of generations they have given way to the easy credit that consumers have had from credit card companies, banks and mortgage lenders. Of course, this day of easy credit seems to have passed. Hence, the lay-away program recovery.

The customer who puts a product on lay-away deposits with the store 20% of the item’s price, plus all taxes and a $10 service charge. The customer, then, has until December 6 to finish the payments for the products. The customer may make these payments at any Toys R Us store.

Toys R Us incurs real costs to offer this program. It has administrative costs, and probably some additional inventory costs as well, in order to make these products readily available once the customer’s payment schedule has been completed. This price component pays for these costs.

This is an example of an optional price component. Optional price components include such additions to the base price as fees on top of the normal basis of charge, penalties or bonuses for the buyer or seller, price caps, differing periods of agreement to maintain a price and extended payment options. A lay-away plan is an extended payment option. The company is offering this price option in order to increase its sales during a period where sales may be slow due to the current recession.

We have found many other examples of these optional price components, which enable a company to be more flexible with prices in difficult times. You may find these examples in the Improve/Pricing section of StrategyStreet.

Posted 10/26/09

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