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How to Overcharge by Giving Discounts Indiscriminately

December 15, 2015

Discounts are generally used to increase sales’ volume by decreasing prices and creating “buzz”. Nonetheless, I encountered an interesting way in which discounts are used to overcharge one-time-buyers.

 

 

Usually, promo codes and discounts are used to attract referral clients or in cross-selling. In the pictures above, however, this is clearly not the case. These pictures were taken in a Metro train in Washington DC. Since the promo code is publicly advertised, anyone who buys a ticket can use it to get a 10% discount.

 

Quite interestingly, anyone can, but not everyone will use the promo code to get the discount. This way, the seller is overcharging some of the buyers.

 

Assuming you want to sell something for $99, you can say that the price is $110 and then advertise 10% with promo-code XYZ… The bulk of buyers will use the promo code and get 10% of $110 off ($11) discount, thus buying for $99 which was the intended sale price. There will be other (forgetful?) buyers who will not use the promo code and pay the price of $110.

 

In addition, such spoof discounts might actually increase sales (in volume) because they generate transaction utility. While the term transaction utility might seem too pretentious, it actually means making the purchase seem like a good deal.

 

Such pricing (marketing) techniques are specific to one time purchases since they strongly rely on people not knowing what the right price is for the item.

 

 

 

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