Better Profits

More Data On Why Discounting Sucks!

Posted on Jul 18, 2007 in Better Profits, How We See It Blog by Jeffrey Summers 0 Comments

New research from the Miami University shows that discounting goods can lead consumers to expect permanently reduced prices, which in turn can stifle sales when the items do return to full price. The research, led by Devon DelVecchio, says however that there are a few strategies that can help reduce the risk of creating permanent low-price expectations. A New York Times article by Alex Mindlin reports on these pricing techniques:

The studies found that discounts expressed as a percentage — for example, 45 percent off $20 shirts — worked better [in terms of limiting future low-price expectations] than equivalent discounts that stated the amount taken off — in this example, $9. The two types were equally effective at inducing people to buy.

The reason was apparently that percentage discounts were less easily remembered than cash discounts, meaning they did not readily enter consumers’ memories as a new price. For similar reasons, hard-to-calculate discounts like 43 percent or 24 percent did not drive down consumers’ price expectations as much as simple discounts like 50 percent or 20 percent.