Are discounts really discounts?

Infograph: TBS

On a lazy day, you are browsing the web and an advertisement pops up in front of you. It says — 50 percent discount, but only for today, click now. You buy the product and feel happy that you got to purchase a product at a discounted price. 

But are discounts really discounts? Did you bother to find out the price of the same product on other similar eCommerce outlets? More importantly, did you happen to check the price of the same product, on the same site, a month or two back?

 Chances are what you paid for at a 50 percent discounted rate was the actual price a few months back, and still is on other ecommerce sites. You may have even paid a higher price at the discounted rate. 

Discounts: Why it matters to businesses 

Restaurants, shopping malls and online stores give you discounts to draw your attention. Your attention is a concern to the corporations because according to a Statista survey, 82 percent of those aged 18 to 24 years and a substantial 93 percent of those aged over 45 years see price as the crucial buying reason. 

For online stores, this statistic means that any competitive online store with better offers is just one click away from the customers.

Offering discounts on goods or services is a way to quickly draw in potential customers. When customers discover that they can save money on products or services they are looking for, likely to use or even have considered using, a discount is likely to bring their attention towards a business, even if they had not previously heard of the business. 
Companies offer discounts not only to strengthen a business, but also to get massive attention. As a marketing tool, discounts lead a business to more profitability.

A tool to fool customers?

Critics say sellers mislead buyers with discounts in several ways. If you follow carefully, you will find that a few months preceding a discount day, the seller gradually increases product price to be able to give a handsome discount on the discount day to impress the buyers. 

We have found in our research that many discounts on Bangladeshi e-commerce websites are also done through a prior price increase. 

Take Evaly's offer for a foldable laptop table as a case study from Bangladesh. This website suggested the original price of the product was Tk2,150, and price after discount became Tk1,760. This same product was available at the same time on Daraz for Tk1,390. 

Donald Ngwe, former Assistant Professor at Harvard Business School researched and found that artificial discounts help in revenue growth of the business. 

Companies believe that discount is a method to entice customers to try a new product, block customers from trying a competitor's new products, and so on. Discount is part of promotions, which is one of the 4Ps of Marketing — product, price, place and promotion. Marketing's mission is to understand customers' needs and create products or services to fulfil those needs. 

In that pursuit, marketers and business owners use mechanisms like offering discounts to leverage their intimate knowledge of the customer, to improve the odds of getting noticed and getting the purchase order from customers.

Marketing experts do not think discounts are necessarily a method to fool the customers. In this age of open information, all information is just one click away. 

How does your brain processes discounts

You see two products from two different vendors, where everything is the same in terms of features, but just one vendor is giving free home delivery. You would definitely buy a product with the 'free delivery' tag, even if it includes the delivery cost into the original price. That is called the framing effect. 

The framing effect is a cognitive bias that influences our decision-making when information is presented in different approaches (Plous, 1993). In other words, we are influenced by how the same fact is displayed. 

Take two yogurt containers in a store for understanding. One says 'contains 10 percent fat' and another says '90 percent fat free'. Which one would you like to buy? Though both the tags mean the same thing, you will most probably buy the '90 percent fat free' one because you are more likely to focus on risks when an information is framed negatively, but seek to avoid risks when the information is framed positively (Tversky & Kahneman, 1981).

Pretend bargains

If you remember the last time you visited New Market and asked the price of something, the seller probably asked double or even thrice the actual price. After negotiation, he gave you about a 60 percent discount on that product. You became happy thinking you won a bargain, but in reality, that discount was not a discount at all. 

The sellers may not have an MBA degree, but they use the anchoring effect like a degree holder. The anchoring effect is a powerful psychological tool where the initial price impacts our judgments about the later prices. We rely profoundly on the first piece of information we get to decide whether or not later prices are cheap.

Our wish to avoid loss at any cost

You need a bike and you are given a chance to buy a bike at a discount of 50 percent, but the condition is you have to pay the price in advance and will get the delivery after a month. You will obviously think that if you miss this offer, you will have to spend at least Tk50,000 more in the near future. As a result, you will order the bike to avoid a future loss of money. The offer is basically saying — do not lose Tk50,000. 

Such decision-making processes can fall under the idea of the loss aversion effect. It means people generally hate losing more than they love to win, even in business deals. This is the reason gamblers lose thousands in the hope to recover the initial losses of even a few hundred. 

Only a discount is never enough

Over the last few months, the e-commerce sector in Bangladesh is going through a rocky journey. Huge discounts on different products drove some eCommerce companies to run their business like a Ponzi Scheme. 

Regular discounts and low-price offers make sense for big retailers, whereas under this model, smaller sellers reduce their margins and at worst, fall out of competition. 

No price war can be won by providing discounts. It is, therefore, all the more important for companies and online stores to think beyond only discount offers and find their own unique strategy through product quality, speed of delivery and excellent customer care.