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Clever Pricing from Toys R Us

Toys R Us has created the “Great Trade-In” event. This event offers consumers who bring used cribs, car seats or other baby products into a Babies R Us or Toys R Us location a 20% discount on any new product from selected manufacturers in the store.

In a public relations explanation, the company calls this event an effort to keep potentially unsafe children’s items from being resold. But a more realistic spin on this event is that it is a trade-in discount that increases the company’s store traffic.

The trick with discounts always is to control the percentage of the market that qualifies for the discount while still giving the company credit for offering low prices. Companies do this by carefully selecting both the segments that qualify for the discount and the form of the discount itself.

A trade-in allowance is a form of discount. There are at least nine of these forms in common usage, including rebates, coupons, discounts in kind, and several others. Most of these forms reduce the effective cost of the discount for the company. These forms of discount, along with the segments that are eligible for the discount, help a company control the spread of the discount to specific customer segments. In our work to analyze pricing through discounts, we have found that there are at least eighteen common customer segments which companies use. This Toys R Us discount is a loss leader discount, which goes to customers who come to a store in order to get a low price on a product and then may stay to buy other, higher-margined, products.

For more on pricing, see StrategyStreet.com/Improve/Pricing/Brainstorming Ideas.

Posted 9/24/09

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