Friday, April 1, 2011
The Discount Effect
Sounds a lot like the axe effect doesn’t it??? Well, they are similar in a lot of ways… the axe effect campaign did its job of bringing more and more young males (its target group) to the brand by showing them what they wanted to see, exactly same as what the discount effect would do to a business. Lets first answer a simple question: a customer sees two shops, offering identical products. One of them has price tags that are about 400% of the other. But to offset this huge difference, it offers a discount on its prices, say a 75% discount. Which shop do you think the customer will walk in to?
A rational answer would be that the customer would check if the discount makes the product cheaper than the other shop, and base his decision on the analysis. But does this actually happen? The success of brands like Koutons, Charlie Outlaw and umpteen others prove otherwise. These brands came into the market and pushed the local garments store into oblivion. Moreover, unlike other bigger brands, their success wasn’t limited to the big metros and tier-I cities. They were equally successful in the tier-II and III cities. And that, even though their prices were almost 10% – 20 % higher than the regular retailer. This story points to a deeper underlying psychology. People always love it when they believe they have got more than they deserve. Remember the time when you expected a 60 in your exam paper, and ended up with a 70 or 75? Remember how happy you were… also you might want to remember the time when you expected 90 in a paper, but ended up with a 85…how you cursed the teacher, your luck and everyone who got more. This is surprising since even though you got better grades in the second case than in the first one, it was the 75 that made you happy. Its nothing exceptional, just human nature. And it is this part of our brains that these brands exploited to their success. The huge discounts attracted lots of eyeballs and people simply glossed over the fact that their price tags were so high that the discount didn’t create any impact in the customer’s favour. This resulted in their grand success.
This makes one think if every new business should follow a similar strategy to gain market control, but there lies a catch. While attractive discounts can fetch eyeballs and footfalls, the end result and the success of a business depends on two things: product selection and customer satisfaction. A business can be successful only if it gets repeat customers, and if there is dissatisfaction among the buyers, it will surely hamper the viability of the business big time.
Food for thought: Is it ethical to inflate the prices of your products in order to offer discounts to satisfy the customers’ greed?