Sales, discounts, price reductions, bargains, specials, mark-downs . . . . and valuation
Here’s an instructive tale:
Sales were moving sluggishly at J.C. Penney, so in 2012 the company got a new CEO who redesigned the selling strategy.
Instead of inflating prices and then advertising discounts, the store would offer regular “fair and square” prices every day.
The idea was that customers would know they were always getting the best value for their money and they wouldn’t wait for items to go on sale.
Other retailers considered this a radical step, even a foolish one. It is common practice for many stores to bump up their “regular prices” in order to advertise large discounts.
To give up this widespread practice was particularly noteworthy for J.C. Penney, because several years ago Penney was charged with deceptive advertising for grossly marking up prices prior to advertising sales. As we reported, the court found the retailer not guilty because the deceptive practice was so pervasive. The judge said that to single out one merchant for prosecution "in an industry that appears dominated by many violators" could be viewed as unfair.
So, two years ago it appeared that Penney was bravely turning over a new leaf. It was bucking common wisdom by declining to inflate “regular” prices in order to offer bogus discounts; instead it would just set realistic prices to begin with.
Problem is: it didn’t work. Penney’s sales plummeted. In less and a year and a half, the retailer aborted its disastrous new strategy and returned to its former practice—inflating “regular selling prices” in order to offer steep discounts.
In fact, prices are often increased just prior to announcing a sale, so that the “discount” seems even greater. This is especially the case before a holiday like Valentine’s Day. A recent ad (shown above) offered jewelry at 40-60% off, plus an “extra 15% off” with “any method of payment.” Sounds like the customer can get a full 75% off merely by paying for the merchandise.
J.C. Penny’s experience illustrates a truism in retail: customers like sales. They are attracted to the idea that they are getting a discount. They don’t necessarily comparison shop for the best value. Their actual purchase is heavily influenced by the mark-down the sign says they are getting.
What this means for insurers:
- Inflated jewelry valuations are going to be with us for a long time. Value inflation is a widespread practice because it works—a discounted price persuades the potential customer to purchase now.
- Get the sales receipt for recent purchases. The price paid is likely to reflect the jewelry’s true market value, regardless of what the retailer (or an inflated “certificate”) says.
- Be wary of reports supplied by the seller. As we’ve frequently reported, such documents often carry valuations that far exceed the selling price. Although the customer was moved by the thrill of the “bargain,” the jewelry should not be insured for the inflated valuation.
FOR AGENTS & UNDERWRITERS
Retailers find that there’s nothing so convincing to consumers as a sign or certificate that says: What you are buying is really more valuable than what you are paying! Prices listed as “regular retail”, like valuations on many appraisals and certificates supplied by the seller, are likely to be inflated.
Ask for the sales receipt for recently purchased jewelry. If there’s a huge difference between appraised value and purchase price, the purchase price is a more accurate indicator of value.
If there is a large discrepancy between the sale price and appraised value, urge the policyholder to get an appraisal on JISO 78/79, the insurance industry’s standard.
Recommend that your clients get an appraisal from an independent appraiser as soon as possible after the purchase, to verify that the quality and value of the jewelry are as stated by the seller. The appraiser should be a trained gemologist (GG or FGA+), preferably one who has additional insurance appraisal training. One course offering such additional training is the Certified Insurance Appraiser™ (CIA) course of the Jewelry Insurance Appraisal Institute.
Remind clients that an inflated valuation does not serve them. If jewelry is insured for an inflated value, it means the client will pay higher premiums.
FOR ADJUSTERS
Compare the appraised value with the sales slip, if available. Jewelers are required to hold sales receipts for at least three years, so if the insured doesn’t have the receipt, contact the jeweler.
If there is a large discrepancy between valuation and selling price, the selling price is a truer indication of value.
If a claim is made for damage, always have the damaged jewelry examined in a gem lab by a trained gemologist (GG or FGA+), preferably one who has additional insurance appraisal training. One course offering such additional training is the Certified Insurance Appraiser™ (CIA) course of the Jewelry Insurance Appraisal Institute.
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