Joanna Wells explores the price mechanism through the ACCC’s findings against JB Hi-Fi over misleading reference pricing. The case highlights how trust can be damaged when customers discover that advertised savings are built on prices that were never genuinely available.
This episode examines why businesses turn to discounting when growth slows and costs rise, how repeated promotions weaken the price mechanism, and why suppliers often end up absorbing the cost of retailers’ demand problems. It also explores why businesses with a clear, quantified value position are better able to defend their prices under pressure.
TIME-STAMPED NOTES:
[00:00] The Price Mechanism and the JB Hi-Fi Trust Problem
[01:02] The Price Mechanism Under Pressure from Rising Costs
[03:16] How Discounting Breaks the Price Mechanism
[04:55] When Retailers Pass Their Demand Problems to Suppliers
[06:13] The Price Mechanism Consequences of Constant Discounting
[08:01] Conclusion: Building a Stronger Value Proposition
The Price Mechanism and the JB Hi-Fi Trust Problem
[00:00] Most of us have seen it. A price tag in a retail store was $299, now $199. The crossed-out number, the savings circled in red. It feels like a deal. That’s the point. This week, the ACCC found that JB Hi-Fi had been doing this systematically, showing customers a was price that in many cases was never a genuine selling price.
[00:30] The product hadn’t been sold at $299 for any meaningful period. The $299 was there for one reason: to make $199 feel like a saving. JB HiFi has agreed to refund customers and acknowledges the conduct, but here is the part of this story that matters beyond retail. The ACCC didn’t find that JB Hi-Fi’s prices were too high.
The Price Mechanism Under Pressure from Rising Costs
[01:02] They found that customers had been shown a reference price that wasn’t real. And once customers understood that the original price was manufactured, the sales price stopped, meaning anything either. At the same time, Australian businesses are absorbing another wage increase from July, which puts most CEOs in exactly this position.
[01:31] What happens when costs keep rising? But customers have already stopped trusting the price because there is an answer most businesses reach for, and it’s usually the wrong one. When growth slows, the pressure arrives fast. Costs are rising. The wage bill just went up again. Customers are more price sensitive, not less.
[01:54] Across the market, businesses are being squeezed from both directions. Rising costs on the one side, weakening demand on the other, and every commercial conversation starts heading in the same direction. We need to move volume. I want to be honest about why this happens. It’s a rational response to a very specific kind of pressure.
[02:20] Revenue is flat. The board wants a number. The sales team needs something to take to market. The retailer is asking for promotional support. The competitor just moved on price in that room. In that moment, discounting appears to solve all four problems. It gives the board a revenue lever. It gives the sales team a conversation starter.
[02:44] It keeps the retailer relationship intact. It neutralises the competitor. Bunnings ran more promotional activity last year than any period before it. More deals, more catalogues, more price signals. Renovation approvals fell anyway. Consumer spending in the category did not follow the response. Looked like action Discounting feels like a strategy because it looks like action most of the time.
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How Discounting Breaks the Price Mechanism
[03:16] It’s just a business running outta better ideas. This is what the discount reflex does, not to margin to the customer. Every time a customer waits for a deal and gets one, they update their mental model of what your product is worth. Not consciously, not strategically, but subconsciously, quietly and automatically.
[03:39] The full price stops being the price. It becomes the opening position in a negotiation they already know They’ll win. You train them to wait. The federal court found that 13 of 14 Cole’s promotions were not genuine. Not because Coles set out to mislead because the promotional pattern had run so long and so consistently that the full price had stopped being real.
[04:07] Customers had already stopped trusting it more deals less trust. And this dynamic doesn’t stay at retail. It runs through every B2B channel where discounting became the pattern. Your trade buyers learn to hold orders until the end of quarter. Your distributors learn how long they need to wait before the discount arrives.
[04:29] Your channel partners price the next conversation on what they got last time. The problem with discounting isn’t that it just lowers margin. It’s that it teaches the market what your product is worth. And once you’ve taught that lesson, you don’t get to unteach it. There is a transfer mechanism most B2B suppliers have never mapped the retailer faces a demand problem growth is slowed.
When Retailers Pass Their Demand Problems to Suppliers
[04:55] Customers are delaying purchases. The renovation pipeline, for example, is thin. Consumer spending is cautious. The retailer reaches for the discount lever, promotional funding, deal support, margin contributions, end of range clearance, and the cost of that response doesn’t stay with them either. The retailer’s demand problem now becomes the supplier’s margin problem.
[05:21] You are funding Bunnings response to a renovation slump. You’re funding Coles and Woolworths response to cost-of-living pressure on consumer spending. Neither of those problems is yours to solve, but you are solving them every quarter because you agree to the terms that make the transfer automatic. And here is what makes it worse.
[5:45] The promotional activity isn’t driving category growth, but justifies the margin cost. The retailer already knows the discount response isn’t working. They are spending your margin to find out, and they will ask again next quarter because it worked not for the market for them. Every time you reach for the discount lever, you are spending pricing credibility.
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The Price Mechanism Consequences of Constant Discounting
[06:13] You cannot get back. The question isn’t whether the retailer is asking. It’s whether your business has a commercial position strong enough to push back the discount. Reflex has three consequences. They don’t run in sequence. They compound each other. Margin erodes one concession, one promotional period, one deal at a time.
[06:37] Until the structure that made the business profitable no longer exists at the volume you need to sustain it. Pricing credibility weakens the full price becomes a fiction. What the ACCC found at JB Hi-Fi customers stopped trusting. The advertised price is the same dynamic running through every B2B channel where discounting became the pattern just without the regulator watching every customer, retail trade distributor prices.
[07:09] The next conversation on what they got last, the cost of generating each sale goes up. More promotional activity, more deal support, more sales effort deployed to win business at a margin that no longer funds the effort. But here is what sits underneath all three. These consequences aren’t the result of discounting too much.
[07:35] They are the result of never building the position that made discounting unnecessary. The businesses living these three consequences didn’t fail under pressure. They arrived at the pressure without a price floor, without a precise commercial value position, without a defined answer to the question, what is this worth and why?
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Conclusion: Building a Stronger Value Proposition
[08:01] When the retailer asked for promotional support, they couldn’t hold, not because the pressure was too great, because there was nothing to hold with. I want to name what this episode has really been about. Not JB Hi-Fi, not the wage increase, not the AC CC. Those are the proof. This episode is about a universal leadership behaviour.
[08:30] Growth slows, panic arrives, discounting follows. Every CEO in this space has done it, is doing it or is being asked to approve it this week. And most of them know and the choir after the meeting that it is not solving the problem. It is managing the symptom while the disease compounds underneath. The businesses that broke that pattern are not more disciplined.
[09:02] They did not simply decide to hold price and will it into existence. They built the commercial value position before the pressure arrived; they defined precisely what their product delivered. They quantified it in terms a buyer could see and understand; they built a commercial position before the slowdown arrived, so when growth slowed and it always slows, they had a flaw, not a feeling, not a brand promise, A position when growth slows the question isn’t whether to offer value.
[09:42] It’s whether your business ever defined what value actually means precisely enough to defend it.
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