Trained for discounts

2014-03-02 2 min read

Nearly every week I receive an $8 off$25 coupon from delivery.com. I’m sure the intent is to generate awareness and develop a habit but it’s having the opposite effect on me: I’m being trained to only order when I have a coupon. Couponing is tough - too little and it will have no impact but too much and you run the risk of training your customers to only react to deals which will result in you needing to have higher prices to maintain your margin.

I recall reading that the retail clothing industry is essentially sales and coupons. Since people are trained to only buy on sales, retailers will set an initial high price and use discounts to drop it to something that will appeal to consumers. No wonder clothing retailers have sales practically every week and definitely every holiday. Ron Johnson tried changing this when he became the CEO of JCPenney but wasn’t able to do it before his ouster. I suspect even if he had more time he wouldn’t have been able to do it without the support of other retailers. Even then, each would have a strong incentive to deviate, a la Prisoner’s Dilemma, so they might just end up exactly where they started.

This begs the question of why other industries haven’t embraced the discounting model. My guess is that it would take a significant amount of effort to change consumer perception that a single company wouldn’t be able to apply and it’s just too complicated to orchestrate - especially when the payoffs are uncertain since competitors can quickly move to this model as well.