The Real Story of Crazy Eddie's "Lowest Price" Guarantee
This is a fascinating discussion about low price guarantees - the sort of conversation between professional economists and criminals that you would have never seen before the internet, or at least not published.
The Real Story of Crazy Eddie's "Lowest Price" Guarantee: "
There has been much fanfare about Crazy Eddie’s legendary commercials and so-called ‘lowest price’ guarantee. A recent article in the New York Times by Hal R. Varian published on January 11, 2007 entitled ‘Rethinking Why Crazy Eddie Wouldn’t Be Undersold, and Other Mysteries’ discusses the issue of low price guarantees including Crazy Eddie’s.
His article was commented on the Economist’s View Blog in a commentary entitled ‘Van Harian: Crazy Eddie’s Low Price Guarantee’ by Mark Thoma.
I posted the following comment which was carried as a separate commentary by Mark Thoma on his Blog entitled ‘Crazy Eddie’s ‘Culture of Deceit.’
Professor Hal R. Varian:
My name is Sam E. Antar and as Eddie Antar’s cousin and CFO of Crazy Eddie I helped mastermind one of the largest securities frauds of the 1980’s. Much attention has been paid to Crazy Eddie’s famous price policy – ‘Shop around. Get the best prices you can find. Then go to Crazy Eddie's and he'll beat it!’ Even more attention has been paid to its legendary commercials featuring Jerry Carroll.
However, many people do not know the real story behind Crazy Eddie’s aggressive sales tactics. Yes, we ‘offered’ the best price and at times it was sometimes true. However, most customers never purchased the items that they initially came into Crazy Eddie to buy. We had an entire procedure built around Crazy Eddie lingo code words described below to maximize profits for the company.
We had in Crazy Eddie lingo called an ‘SW’ or ‘switch the customer’ policy which was to initially seek to sway the customer to purchase a more profitable item that offered ‘better value.’
If the initial sales person could not SW the customer he would ‘TO’ the customer to let another more experienced sales person ‘take over’ the sales pitch with the customer in order to ‘guide’ them to the more profitable purchase.
If the customer was still insistent on buying the items that they had originally come into Crazy Eddie to purchase rather than lose the sale we would sell them the merchandise but try to sell them high profit accessories and long term warranty contracts to make up for the low profit of the units purchased.
If the merchandise was not in stock we would sneak the display item off the shelf and ‘lunch it’ or repackage it and sell it as brand new.
Finally, if a customer decided not to purchase a product for any reason after going through various phases of this process Crazy Eddie has a ‘NAD’ or ‘nail at door’ policy where a sales person located at the exit would try to ‘kosher’ the customer.
The Crazy Eddie Empire was built on deceit. The massive financial fraud that followed was based on a culture of deceit the permeated from the Antar family that ruled Crazy Eddie.
There are many lessons to be learned from the Crazy Eddie frauds. Specifically as it relates to your commentary I would suggest something I learned in my first day in economics class, ‘There Ain't No Such Thing As A Free Lunch.’
Company’s have costs and must earn a profit. Yes, some companies can make money more efficiently than others. However, as a former criminal I can assert that old line, ‘If it looks too good to be true, it is probably is.’
Respectfully,
Sam E. Antar (former Crazy Eddie CFO & ex-felon)
In later comments to other reader questions on his blog I posted the following:
The point about ‘low price guarantees’ that people need to understand from the retailer’s point of view in that it is a game of averages no different than hoping people do not send in mail-in price rebates.
Most consumers who are complacent in knowing they have such a guaranty will not investigate further or be willing to accept the retailer’s ‘credibility.’
As a criminal I learned to use people’s humanity against them. For white collar criminals good traits that people have, such as trust, are weaknesses to be exploited.
While not all deceitful conduct rises to the level of criminality, it would be wise to assume that the basis of a deceitful person’s effectiveness is the trust of the person being misled.
I do not mean to say that ‘low price’ guarantees are inherently deceitful. However, if such guarantees are 100% exercised it is a complete impossibility to maintain such guarantees since prices would dwindle down to zero.
Sam E. Antar
Former Crazy Eddie CFO & Convicted Felon
Final Note:
I recommend reading both Professor Hal R. Varian's article and other writings found here. Professor Mark Thoma's blog 'Economist's View' is recommended reading.
Quoted From The New York Times Article:
"...three economists, Maria Arbatskaya, Morten Hviid and Greg Shaffer, have recently published a paper in the International Journal of Industrial Organization called, ‘On the Use of Low-Price Guarantees to Discourage Price Cutting,’ that looks closely at some empirical evidence. (A prepublication version of the paper can be downloaded from www.simon.rochester.edu/fac/shaffer/Published/tires.pdf.)
(Via White Collar Fraud.)
