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Evan Davis on... discounting

Updated Friday, 3rd July 2009

When sales fall, should prices follow suit? The Bottom Line presenter Evan Davis considers discounting.

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There was a swimming pool somewhere in some municipal part of Britain which decided it wanted to charge more to people on sunny days. So it said we’re putting the price up on sunny days. In fact I think they were doubling the price on sunny days, because the demand was so much greater on those days they needed to ration that demand by higher price.

Now if you’re an economist that sounds incredibly sensible; there are more people wanting to come in, it’s too crowded, put up the price. It didn’t go down well with the locals, needless to say.

The locals don’t believe that’s how pricing should work. Now here’s my advice to what that swimming pool or what that council should have done; they should have not said we’re charging a higher price on hot days, they should have just put all their prices up and said we’re charging a lower price on cold days.

It is a fundamental feature of human nature that we would rather get a bargain than feel we’re paying a premium price for something other people are paying less for.

Given that psychological feature of human beings, what companies are always striving to do is to offer us bargains. If you’re selling sofas to people, they don’t want to feel they’re buying the sofa or something they might do every ten or fifteen years at a particularly high price, they want to feel they’re getting it just at the right time.

So you always have a sale, and that’s what we observe when it comes to sofas, and there are quite a few products where the discounted price has almost become the normal price.

Now I don’t discount the fact that sometimes the discounted, the discount is there simply because the economics of the industry mean they need to sell more, get more bums on seats, whatever, so they have to cut there price to get more customers through the door.

But equally, I don’t discount the fact that quite a lot of the time discounting is a sales tactic. It’s a psychological thing. It’s a way of making people feel better about there purchase, and that you have to always remember that fundamental economics drives industries but at the same time there’s room for a little bit of psychological gamesmanship as well, and I think that’s what discounting is often about.

That’s my view, you can join the debate with The Open University.

 

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