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Are discounts profitable for us or stores?

A sensible view of sell-off tempting offers

There is nothing more irresistible for human mentality than the offer to sustain and improve their wealth. Have any doubts? You shouldn’t. Even as early as 1895, the good old Freud proved that one of the principal drivers of human existence was seeking pleasure. In about 100 years, Columbia University professor Higgins developed the idea suggesting that we made all decisions based on the assessment of benefit/damage ratio.

The discount promises to satisfy all these needs: to avoid loss, to gain benefit, and to get pleasure from a purchase. And everything would be just fine if the great and powerful Retail wouldn’t try to employ this weakness for its own gain.

Evident benefit, but only not for you

It’s no secret that discounts have turned into the main driver of commerce since long ago. This fact as such does not pose a problem since good faith sell-offs are mutually beneficial. The problems start, when the seller’s actual profit is built from obviously fake discounts. Unfortunately, fake discounts have been gaining momentum from year to year. According to the research held in Great Britain, in 2016, only every second discount offered online during the Black Friday was real. And in 2017, the share of fraudulent offers already reached 60%.

Is there any way to protect your wallet against fraud wearing the mask of benefit? Of course. The first thing you need to do is to learn more about the most widely spread methods of deceit during sell-offs.

1 cent discount... if you are lucky

Does the price sticker have the old price crossed out, while a new one is written with the three-times larger font and brighter color? Does a bright yellow price sticker promise a «Special Offer»? Look for a dirty trick. A marketing professional did the uttermost of his power to make you focus attention on potential benefit, and not the real or previous price of the product.

If it’s possible, have a look at the original price sticker, since it’s quite likely that it differs from a new one just in several cents. Then again, you can be even less lucky: the brightest price stickers are often used to disguise offers with their price unchanged.

Discount from the «recommended» price

The range of methods of sneaky sellers includes the technique that works even against the most attentive buyers. We mean the discount from the so-called «recommended» price.

The recommended price is the amount a manufacturer states as preferable retail price. However, the recommendation is not an official bid or obligation for a seller. Moreover, the recommended price most often refers to the upper border of the market offer, that is why this discount is actually a barometer of seller’s greed.

If a price sticker shows discount from the recommended price, spend a couple of minutes to find out, what actual average market price for the product is. More than likely, you will be pleasantly surprised.

Discount from the double markup

This price manipulation technique is so widely spread that it’s totally incomprehensible how it can be still permitted by the law. It works as follows: during 1 – 3 months preceding the sales, the seller gradually increases product price to be able to give a generous discount the X day with a clear conscience. What’s the result? On a good day, you will buy the product at its usual price, but you can also unwillingly give the seller a present of 30% extra.

Bolder retailers don’t even bother to take care of gradual price increase. They just announce «discount from the previous price», even if it has never been stated on the price sticker. This is what the USA largest retail chains, Macy’s and J.C. Penney, have done this year, which returned them quite fair class action lawsuit.

«How can such manipulations go unseen?» — l hear you cry. The secret is to play with the price of product categories consumers don’t usually keep a close watch on: clothes, footwear, jewelry and consumer electronics. This is apparently what Aliexpress sellers placed a bet on in the Singles Day AliExpress Sale World's Global Shopping Festival they held that in point of fact turned out to be the day of «fake» discounts of the global scale.

Discounts of the World's Global Shopping Festival

One of Geektimes.ru users has studied pricing dynamics of 510,797 products and has found out that quarter of discounts of the World's Global Shopping Festival is fake done through the prior price increase, and every second discount is only a slight price reduction.

Additional discount

A rare consumer can easily handle fractional calculations in their heads. This is the conclusion made by the University of Minnesota research fellows that studied shopping behavior reacting to special offers. In particular, they have found out that overwhelming majority of people cannot add discounts correctly.

This is what the seller counts on stating the first price reduction of 20% followed by the other 25% discount. A buyer carelessly adds together 20 + 25 and concludes that he can buy a product with 45% discount. «Oh, but this is almost 50%! Great benefit!» — he thinks. Not a bit of it!

There is no point in adding «additional» discount since 25% is deducted not from the full price, but from the already reduced price. Thus, we get the formula of 100% x (1 — 0.20) x (1 — 0.25) = balance of 60%, which means the discount amounts to only 40%. Keep this trick in mind the next time you are offered an additional product discount during the sales.

How to fight fake discounts?

  1. Compare all offers

    Have you noticed a tempting discount? Search online quickly to compare with other market offers. You can do it even from your mobile phone! And don’t yield to phrases like «limited time offer» or «only 24 hours». These techniques are intended to force you to waive your right to make an informed decision.

  2. Follow the dynamics

    If the product you interested in is available online, link it to the price change tracker. For example, Сamelcamelcamel.com is dedicated to Amazon.com offers. All you have to do is to add the link to the product you are interested in, and the website tracks any price fluctuations and notifies you of essential price changes up or down. SmartPriceMonitor is a more versatile service also offering Chrome plug-in that enables tag eBay and Booking.com products you need in one click.

    Tracking price dynamics you get an opportunity not only to be the first to know that discount has been offered but also run an expose on the seller if the product has been artificially overpriced.

  3. Don’t trust frequent sell-offs

    Have you noticed that some stores announce high discounts once in two months? These sales have nothing in common with seasonality or product range replacement. The truth is that during other periods they sell an overpriced product so that the «discounted» (which is actually ordinary) price seems unquestionably beneficial. In some marketplaces, discount offers are even permanent. Think twice, if such business is worth getting your money.

Even if, with our help, you have proved that the tempting discount is not fake, don’t let it become the main reason for purchase. If craving for benefit brings about unplanned or evidently excessive spending, this has nothing in common with being a prudent buyer.

About author
Product manager @Moneon. Working hard at solving puzzles of the world of finance, so you don't need to.
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