Wednesday, March 10, 2010

Earn Goodwill in Giving Discounts

Your pricing policy should result in high profitability. To accomplish this, you want customers to return to your store, and they are more likely to return when they feel good will toward you and toward the pricing policy. Researchers at University of St. Thomas and University of California-Berkeley advise that when discounts are used properly, it earns good will.
  • Be kind. In most cultures, we expect to see discounts offered to senior citizens. A store giving that sort of discount receives appreciation from the seniors. It also generates good will among many of those not receiving the discount, since they see the retailer as kind-spirited.
  • Avoid appearances of discrimination. The University of St. Thomas/UCB researchers presented study participants with a situation where a dry cleaner gives a discount when cleaning a man’s shirt that is not given when cleaning a woman’s blouse. About 70% of the study participants said this was unfair. The researchers hypothesize that was because the participants considered the policy to be discriminatory. Only if the cost differential was called a surcharge—not a discount—and a reason was given—“more pleats, ruffles, or sensitive fabric”—did most respondents consider it to be fair.
  • Make all the rules clear. The researchers analyzed a pricing policy used by Amazon in year 2000, in which some shoppers were offered a discount of 30% on a set of DVDs, while others were offered a discount of 40%. When customers discovered in online chat rooms what was going on, there was not much evidence of good will toward Amazon. Amazon’s error here was in offering two different prices at the same time. I believe that if a 30% discount had been offered one month and a 40% discount the next, good will would have been generated, not destroyed.

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