Discounts: Do They Work?

The great debate about discounting is one in which I have been engaged for many years. My colleagues are firmly entrenched on both sides of the fence, so we would invite and welcome your thoughts on the topic.

My personal take is that discounts do not work. I say this because I cannot think of a single thing I purchased solely because it was discounted. That being said, I will admit to the fact that I’ve been delighted to receive discounts for things that I’ve already decided to purchase. But I didn’t make that decision just because they were discounted.

So maybe we need to define what we mean by “work.”

If someone is considering a particular purchase, but it is beyond his or her budget, and then an applied discount brings it into budget and it’s purchased, the discount worked. Likewise, if someone has a preconceived price point or range they are willing to pay for something and then a discount brings the price within that range and the purchase is made, then I think it works.

Are there scenarios other than these where discounting “works?”

I think it is safe to say that, in those scenarios, the discounts allowed for or incentivized the purchase by eliminating barriers. But, if there wasn’t a need or desire to purchase before the discount was offered, then I don’t think the discount worked to create the need or desire.

The most famous (admitted) discounting blunder of our time was conceived by the U.S. automakers when they implemented “rebates.” They have worked every day since launching this concept trying to reel it back in. Why? Because the rebates didn’t cause someone to buy a new car, they just made it easier to buy something someone was already going to buy.

(This is much like credit, which, incidentally, was opposed by Henry Ford, but that’s for another post.)

The rebate program created “rebate addicts” among U.S. auto consumers, and led to many unanticipated consequences such as the outsourcing of jobs to low-cost countries so the automakers could continue to drop prices even further. You got your rebate but lost your job. So how is that working for you?

This Wal-Mart mentality has infiltrated our culture. It has had an impact on how consumers view pricing and value. Corporate discounting and incentives “feed” this culture to the point where almost no one will buy anything if it isn’t discounted.

Even the U.S. government got into the game with “cash for clunkers,” then “cash for caulkers.” Did these programs “work?” Sure did. Everyone who was going to buy a car later in the year purchased a car sooner. Same with caulkers. The programs worked because they incentivized a purchase of goods that would have occurred anyhow.

So, no. On the other hand, they did not work.

So, we’re back to where we began. Do discounts work? Well … yes, in the sense that it seems like nothing is offered or purchased without a discount or incentive these days.

OK. I’m off the fence and all behind discounts. I talked myself into it.

I need to close out this post so I can get with my partner to raise all of our pricing by 10 percent. That way, we can discount it by the same percentage in order to incent purchases.

Such a deal!

Brian

P.S. You know that everyone does this, right? Of course you do. So why does it still work? I don’t know. Please tell me!