Discounts may devalue your product

I love going to the city markets and scouring for interesting pieces. One weekend whilst browsing the stalls and tables, I came across a lovely vase that I had seen a few days ago in a popular shopping centre. The price of the vase in the retail store was $220, but here the vase at the markets was priced at $40. I couldn’t believe my luck – what a bargain! Of course, I bought my treasured little piece (an impulsive-emotional buy). But the very next day, looking at it sitting in the centre of my dining table, it no longer looked so lovely. What had happened?

Behavioural economics explains that buying the vase at a ‘discounted’ price led to my devaluing the item. Prices are typically used to determine the ‘value’ of products, particularly in the absence of other helpful information. However, this assessment is relative, not absolute. We set an anchor in our minds about how much we expect particular items to cost - and any item below this we tend to deem is probably of lesser quality. Now, discounts are a big draw card, and work well with some items. But where brand image is critical, like Prada or Mercedes for example, lowering prices can actually lower consumer’s perceived value. Discounting may have a short term effect of boosting sales, but the longer term effect is likely to be damaging.

The message is – use discounts scrupulously.