There's a reason you feel a rush of satisfaction when you see a "40% OFF" tag at Macy's. It's not because the sweater is worth $35. It's because it was $60 last week, and your brain is wired to process that gap as a win. That psychological mechanism is the engine behind high-low pricing, one of the most widely used retail pricing strategies in the world, and one that has survived the rise of e-commerce, Amazon's price transparency, and a decade of "everyday low price" pressure from Walmart.
I find high-low pricing fascinating because it lives at the intersection of pricing strategy, consumer psychology, and retail operations. It's simple in theory and genuinely complex in execution. Let me walk through how it works, why it still works, and what the research says about when it doesn't.
High-low pricing (sometimes written Hi-Lo) is a retail pricing strategy where products are introduced at a higher "regular" price and then periodically discounted through sales, promotions, or clearance events before returning to the higher price. The cycle repeats: high price, promotional low, back to high.
This contrasts directly with Everyday Low Pricing (EDLP), where products are sold at a consistently low price with minimal temporary promotions. Walmart is the textbook EDLP retailer. Macy's, Kohl's, and JCPenney are textbook high-low retailers.
The strategy works because of a psychological principle called anchoring. The original high price sets an anchor in the consumer's mind. When the price drops, the consumer perceives the discount as a gain relative to that anchor, even if the "sale" price is what the retailer planned to charge all along. Framing and reference price effects do most of the heavy lifting here.
A typical high-low pricing cycle looks something like this:
| Phase | Price | Duration | Purpose |
|---|---|---|---|
| Launch/Regular | $80 (full price) | 4-6 weeks | Establish reference price, capture early buyers |
| First Markdown | $60 (25% off) | 1-2 weeks | Drive traffic, create urgency |
| Return to Regular | $80 | 2-4 weeks | Reinforce anchor price |
| Seasonal Sale | $48 (40% off) | 1 week | Capture deal-seekers, clear inventory |
| Clearance | $32 (60% off) | Until sold out | Eliminate remaining inventory |
The retailer plans these cycles in advance. The "regular" price isn't really what they expect most units to sell for. It's a reference point that makes every subsequent discount feel like a deal. Internal metrics track the sell-through rate at each price point and the average unit retail (AUR), which is the actual average price customers pay across the full lifecycle.
Department stores like Macy's, Nordstrom Rack, and Kohl's have built their entire business models around this cadence. Kohl's adds an extra layer with its "Kohl's Cash" system, which creates a pseudo-currency that ensures customers return during the next high-low cycle.
This is one of the most interesting findings I've come across recently. A study by Chris Hydock at Tulane University's Freeman School of Business, published in 2024, analyzed over 160 million grocery purchases to understand why some consumers prefer high-low retailers while others gravitate toward EDLP.
The key finding: it depends on whether the consumer is focused on taste benefits or quality benefits.
| Consumer Focus | Preferred Pricing | Behavior |
|---|---|---|
| Taste-focused | EDLP | Uses discounts to get lower prices on items they already prefer |
| Quality-focused | High-Low | Uses discounts to try new, higher-quality items they wouldn't buy at full price |
Quality-focused shoppers see the high-low sale event as an opportunity to "trade up" to a better product at a temporarily accessible price. Taste-focused shoppers just want their preferred items at the best consistent price. This helps explain why the high-low model persists in categories like fashion, electronics, and specialty food, where quality variation is high and the opportunity to trade up is a genuine motivator.
Macy's and Department Stores: Macy's runs hundreds of promotional events annually, including its famous "One Day Sale" events and holiday promotions. Their Friends & Family discount (typically 25-30% off), stacked with Macy's card holder discounts, creates the perception of extraordinary value even when the effective price was planned from the start.
Nike and Adidas: Sportswear brands typically launch new products at full MSRP, then discount through seasonal sales. The Black Friday to New Year's window has become the primary high-low cycle in athletic apparel, with price drops of 30-50% followed by a return to regular pricing in January.
Consumer Electronics: Samsung, Sony, and other electronics manufacturers use high-low pricing aligned with product life cycles. A new TV model launches at a premium price, drops during key retail events (Prime Day, Black Friday, Super Bowl), and reaches clearance pricing as the next model approaches. This maps closely to the Product Life Cycle framework.