Discounting Deception

The University of Ohio conducted a study that you might find interesting especially if you’re a proponent of giving product or service discounts.  

 

The school had a theatre department that sold season passes for 10 shows that were put on during the semester.  The folks at the university wanted to test the effect of discounted ticket prices on the show’s attendance for that particular semester.

When a person approached about buying season tickets for $15, they were offered one of three types of season passes.  Out of the 60 students in the test group,

•One group was sold a season pass at full price.  

•The second and third groups were sold season passes with a discount of $2 and $7, respectively.  

 

The two groups receiving the discounted passes were told they were receiving a promotion discount from the theatre company.  All three groups had access to good seats.

The folks at the University wanted to see if offering discounted passes as opposed to full-price passes would make a difference in the attendance for the ten shows.  The results would be as one might expect.  Those who paid full price showed up more often than those who received discount passes.  Now at first glance, you might attribute this attendance effect to sunk cost; those who paid full price wanted to recoup their investment (i.e., get the most out of their passes by going to the performances) after having spent $15.

 

The proverbial ‘fly in the empirical ointment’ was that those who received the $2 and $7 discount missed equally as many performances.  If the sunk cost was truly in effect, those who only received a $2 discount should’ve attended a few more shows than the group who received a $7 discount.  But that didn’t happen.

 

What happened is something called Value Attribution; which simply means the inclination to superimpose or imbue a thing with certain qualities or characteristics based on our initial perception.    Our initial impression of a thing causes us to view that every thing in such a way that is consistent with our initial impression.  Simply stated in the case of the discounted season passes, if it’s a cheap ticket, then it must be a cheap show.  Therefore, buying something cheap causes us to devalue or view the object as having little to no value.

 

In selling, the tendency sometimes is to provide the client a hefty discount as an inducement to buy our product. But given the University of Ohio’s study, I think it’s worth pausing for a moment to reflect on how the buyer might view your proposal.  We’ve all been in a situation when someone offers us such a good deal that we wonder, ‘What’s wrong with this picture?’  So, it should come as no surprise that your buyer upon receiving a very low price (big discount) may think, ‘Why are they selling it so cheap?  What’s wrong with it?’  

 

Even if the buyer does make the purchase, they may choose not to use it thinking it’s not worth much since the price was so low.

For example, I remember buying a leather jacket that was selling for only $55.  At the time I wondered why it was so inexpensive.  Was it the quality?  Something must be wrong with it!  Whatever the reason, the result was that I hardly used the jacket and after a few months I decided to donate it to Goodwill.

What happened?  From the very moment I made the purchase, I had already devalued the jacket in my mind.  That perceived devaluation guided my behavior in such a way that I never used the jacket.  Now imagine how my attitude, hence my behavior, towards the jacket would’ve been different if I had paid $250.  I’m sure I would’ve used it more often and it would probably still be hanging in my closet today.

 

Buying something at a price that’s too good to be true may set up in the buyer’s mind a discount deception.  Just like the season ticket pass holders (or my leather jacket), the buyer may choose not to use the product even after the purchase (i.e., devaluing the item from the beginning).

Value attribution is about controlling perception and the last thing you want is a buyer to associate you (or your company) with selling cheap products or services.  The unintended consequence of heavily discounting a product may be that the buyer, sensing little value, chooses not to buy any other products in the future.  Be careful!

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