“Gas prices continue to rise. At the gas station near my house they have a slot for your credit card and one right next to it for your 401K.” –Jay Leno
And this is why customers LOVE discounts! Your customers like to be treated special…in a positive way. Not like the way we are treated by the big oil companies. When you offer discounts to customers you foster loyalty, recognition, and awareness for your brand. Let’s admit it…that’s what it’s all about.
As a business owner you may offer discounts as a pricing strategy to promote your available products and/or services. This pricing strategy can prove very effective at moving inventory. Implementing discounts wisely and tactically can give your business the “edge-up” on the competition. Before I get into how you may reap the maximum advantages, let’s look at the general advantages discounts are probably already providing your firm.
Short-term and long-term objectives may be accomplished through the use of discounts.
Fraccastoro, Burton, and Biswas (1993) offer 4 positive results in the short-term:
1. Enhanced customer perceptions of savings and value
2. Improved attitude toward the brand in relation to competitors
3. Inventory reduction
4. Increased store traffic and short-term sales
Fraccastoro, Burton, and Biswas also state the 4 advantages in the long-term:
1. Establishing a specific price “image”
2. Perceived positioning among competitors
3. Overall shopping intentions
4. Customer loyalty
To make your use of discounts as effective as possible you need to enhance customer’s perceptions by using:
- Price cues
- Semantic cues
- Product cues.
What are price cues?
You may not know or think of it in this term, but you probably use this strategy in your pricing structure now. For example, when you are offering a sale price on an existing product or service, you should present your reference (regular) price and your sale price. As an illustration, “was $49, now only $29”. Fraccastoro, Burton, and Biswas (1993) strongly suggest that the reference price should be “set at a high yet plausible level”. This sets your reference price at the normal market price in the customer’s mind.
What are semantic cues?
A semantic cue is a fancy term that refers to the specific wording of a phrase to communicate price-related information. For example, “was $119, our price $79”, “regular price”, or “sale price”. Fraccastoro, Burton, and Biswas (1993) cite that the most effective semantic cue is stating the maximum discount level. For example, stating the discount as “save up to 40 percent”.
What are product cues?
When offering discounts for your products and/or services, it is very important for you to address how your customers may perceive the discount in relation to the products and/or services offered. Here are 3 possible customer perceptions (Check these out!).
- Price reduction is tied to a negative feature of the product (Ex. Poor styling). This can lead to negative effects.
- Price reduction is caused by a unique circumstance (Ex. To avoid paying inventory tax). This may have no effect.
- Price reduction is due to the nature of the advertiser (Ex. To meet competition on a specific occasion). This has a positive effect on consumer evaluation.
I found the following research finding very interesting.
Licata, Biswas, and Krishnan (1998) wanted to determine if elderly consumers react differently to price promotion, or the ambiguity tied to discounts. The results of the research found that, “elderly consumers are no more adversely affected by implausible discounts than non-elder consumers”. So, now you do not have to feel obligated to deal with these 2 target markets differently when presenting discounts.
Fraccastoro, K., Burton, S., & Biswas, A. (1993), Effective use of Advertisements promoting sale price. [10 pages] The Journal of Consumer Marketing. Available: http://proquest.umi.com
Licata, J., Biswas, A. & Krishnan, B. (1998 Summer), Ambiguity and exaggeration in price promotion: Perceptions of the elder and nonelder consumer. [26 pages] The Journal of Consumer Affairs. Available: http://proquest.umi.com
Sigue, S. & Karray, S. (2007 June), Price Competition During and After Promotions. [14 pages] Canadian Journal of Administrative Sciences. Available: http://proquest.umi.com
Wilcox, J., Howell, R., Kuzdrall, P. & Britney, R. (1987 July), Price Quantity Discounts: Some Implications for Buyers and Sellers. [5 pages] BioCycle. Available: http://proquest.umi.comTweet