Why don't Walmart and Louis Vuitton discount?

Having sales is a classic price discrimination strategy--the shoppers who love a dress so much that they won't risk losing it, or can't wait to wear it, pay full price.  Those who care less, have less money, or have less urgent time preference wait and pay less. 

So why are sales common in the midmarket, but unheard of at both discounters and many luxury brands?  Apple doesn't discount; neither does Bose or Louis Vuitton.  At the other end, you don't see a lot of clearance racks at Costco or Wal-Mart.  (Though expensive electronics, like cameras, do get marked down, at least at the one Wal-Mart I've been to.)

It's not because price discrimination wouldn't work; there are people who would buy a cheaper iPod or Louis Vuitton bag.  In the case of Apple, that wider distribution might actually help them, since the network effects of widespread ownership of their products are fairly large.  iPhone has a lot of apps that interact only with other iPhone users.  Ubiquitous Macs mean more software, wider familiarity with the OS, and, if you're a DC journalist, the ability to recharge your computer using any other journalist's power cord.

The answer is that both sets of brands have a very distinct message that discounting wars with.  In the case of luxury brands, it is "This is a product for people who are willing (and able) to pay for quality)".  In the case of the discounters, it is "You will get the best possible deal every time you shop here."  Moreover, the discounters manage to capture the real thrill of a sale--getting something for less than it ordinarily sells for--simply by offering very low prices all the time.  Every time I contemplate my Rabbit corkscrew, I get a little extra utility from remembering that it was $11 at Costco.  While for luxury retailers, getting a deal would give your less enthusiastic or wealthy shoppers the thrill of a deal only by significantly diminishing the carriage trade's joy in owning something most people can't have.

Presented by

Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

Why Is Google Making Human Skin?

Hidden away on Google’s campus, doctors at a world-class life sciences lab are trying to change the way people think about their health.

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register with Disqus.

Please note that The Atlantic's account system is separate from our commenting system. To log in or register with The Atlantic, use the Sign In button at the top of every page.

blog comments powered by Disqus

Videos

Why Is Google Making Human Skin?

Hidden away on Google’s campus, doctors are changing the way people think about health.

Video

How to Build a Tornado

A Canadian inventor believes his tornado machine could solve the world's energy crisis.

Video

A New York City Minute, Frozen in Time

This short film takes you on a whirling tour of the Big Apple

Video

What Happened to the Milky Way?

Light pollution has taken away our ability to see the stars. Can we save the night sky?

Video

The Pentagon's $1.5 Trillion Mistake

The F-35 fighter jet was supposed to do everything. Instead, it can barely do anything.

More in Business

Just In