There has been much fanfare about Crazy Eddie’s legendary commercials and so-called “lowest price” guarantee. A recent New York Times article 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 sales policy.
The New York Times article was discussed in the Economist’s View Blog in a post entitled “Van Harian: Crazy Eddie’s Low Price Guarantee” by Mark Thoma. I posted a comment which was carried as a separate blog item by Mark Thoma entitled “Crazy Eddie’s “Culture of Deceit.” My response is below:
Professor Hal R. Varian:
My name is Sam E. Antar. I am Eddie Antar’s cousin and the former CFO of Crazy Eddie. I helped mastermind at Crazy Eddie's 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.
The first sales person that a customer encountered would attempt to "SW" or "switch the customer" by persuading them to purchase a more profitable item that purportedly offered a “better value.”
If the initial sales person could not SW the customer, he would “TO” the customer by letting another more experienced sales person “take over” the sales pitch. The "TO" sales person would attempt to persuade or "guide" the customer to purchase more profitable merchandise.
If the customer was still insistent on buying the merchandise that they had originally intended to purchase, rather than lose the sale, we would sell them those same items. However, our sales people would pressure customers to purchase high profit margin accessories and long term warranty contracts to increase profits on each sale.
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 our sales process, Crazy Eddie had 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.”
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. White collar criminals consider good traits, such as trust, as weaknesses to be exploited in the execution of their crimes.
While not all deceitful conduct rises to the level of criminality, it would be wise to assume that the level of a deceitful person’s effectiveness is measured by the trust of the person being misled.
I do not mean to say that “low price” guarantees are inherently deceitful. However, if such guarantees were 100% exercised it would be a complete impossibility to maintain such guarantees, since prices would dwindle down to zero.
Sam E. Antar
Former Crazy Eddie CFO & Convicted Felon
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.)