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Monday, Jul. 30, 2007 at 10:13 am

Discounting Your Discounts in Customers’ Minds

By Bryan Eisenberg
July 30th, 2007

crazyeddiepriceslashed.jpgFor Sale! Prices Slashed!! Marked Down!!!

People have used many of the same tactics for centuries to focus potential customers on the value they’d receive if they were to buy now. But here is a question for you:

Would your customers rather a product be marked down from $203 to $192, or would they prefer a markdown from $199 to $188?

Either way you slice it, they get an $11 price reduction. For you, it changes your final price from $188 to $192. Four dollars more for you sounds better and, believe it or not, customers perceive they’re getting a larger discount at the $192 price point. This is definitely an area that many more retailers need to test regularly.

A recent Journal of Consumer Research paper examined the notion that responses to pricing differs based on the right-hand digits in sale price figures. In fact, participants reacted as though low digits were farther apart than higher ones as well as they were about 20 percent more likely to actually buy.

Are you slashing prices so low that it is “insane“? Are you not getting the best possible effect from your discounting? Do something about it.

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Comments (9)

  1. Wondering what everyone thinks of the Sears practice of always having a very high regular price so they can advertise 40% off that cordless drill all the time?

    Are consumers still considered that naive?

    Is Sears simply addicted to discounting or do they have a higher understanding of consumer behavior?

  2. Seats has lost it’s way several times over the last twenty years. They were the icon of quality with their own branding, combined with perceived value and backed up by knowledeable sales staff. This eroded in the 80′s as Sears target audience got older, and no effort was made to appeal to a younger set. They resorted to discounting, and still fall back on it. even after several positive attempts to rehabilitate the brand. I’m 50, and my dad is 75. I remember as a kid that when my Dad was shopping for that all knowing”tool” he was going to Sears and Sawbucks”, a take off of Sear Roebuck. Constantly relying on discounting paints your company and brand in a corner, one that’s difficult to get out of.

    Is Sears addicted to price discounting. It’s what they know and they fall back on.

    It’s like Wal Mart trying to increase the style branding of it’s image and products. sounds nonsensical at first but with consistency and creativity it could work

  3. Sears isn’t the only major retailer using that tactic – I received so many “sales” e-mails and fliers from JC Penney that I unsubscribed from their list. There were several a week loitering in my inbox and mailbox. The question became not “when is JCP having a sale?”, but rather “when is JCP NOT having a sale?”

    JCP ads became like my neighbors’ car; I see it every day but couldn’t tell you anything about it. And when their ads became invisible, so did their store.

    As an aside, Sears lost me years ago when they failed to credit a payment to my store credit card, and despite proof of payment, sent it to collections and called me daily for almost a year. They reported it to credit bureaus as a write-off (which I didn’t know until I applied for a home mortgage). Disputed amount: $14.87. How’s that for word-of-mouth advertising?

  4. I track more than 100 of the top online retailers’ email marketing campaigns and nearly every retailer is addicted to discounting. I did a study of retailers’ subject lines last month (http://retailemail.blogspot.com/2007/06/reportlet-retail-email-subject-line.html) where I looked at nearly 2,000 subject lines from emails from 94 major online retailers that were sent during February, March and April. What I found was that about 72% of subject lines were promotional in nature. So even when they’re addressing their more engaged customers they’re pushing the discount button over and over. There’s definitely an opportunity for them to have a deeper, more content-based relationship with customers.

  5. Discounting is evil.
    Even for the buyer.
    Because discounting leads to lower prices everywhere, but more importantly, it leaves the ‘discounting company’ with lower and lower margins. Till of course, they go out of business.

    Why would I want a store of my choice to go out of business?

    I’ve railed against discounts forever, and here is a rant on the topic: http//www.psychotactics.com/artdiscounts.htm

  6. As Roy Williams likes to point out, these folks are addicted to Ad Cocaine. They also should probably read Your Email Isn’t What You Think It Is which I wrote in 2001.

  7. Sean, couldn’t get your link… Would love to read your rant.

  8. This really is a centuries old trick – and like Brian said, it is effective because most people value the product at their initial impression, before the discount (at least thats what I think he meant).

    I remember once at a flea market, some grifter operating a perfume store, tried selling me a $70.00 bottle of cologne. Of course, this was an obvious rip off, and I began walking away.

    At this point, he followed me, and began to haggle in earnest. I remember him finally reducing the price to $25.00 – and although I knew it started out as a blatant rip off, it was hard for me to shake the idea off in my head that I was missing out on a great deal.

    Fortunately, it was early in the morning, so having the whole day to shop, I walked away.
    ….10 minutes later, I found another vendor selling the same bottle for $20.

  9. Just updating the earlier link that someone wanted to read.
    http://www.psychotactics.com/the-logical-case-for-increasing-your-prices

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Bryan Eisenberg, founder of FutureNow, is a professional marketing speaker and the co-author of New York Times and Wall Street Journal bestselling books Call to Action and Waiting For Your Cat to Bark and Always Be Testing. You can friend him on Facebook or Twitter.

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