Pricing strategy & practice Risk and maximum acceptable discount levels

Purpose – Studies on optimal discount levels have sometimes yielded contradictory results, leaving practitioners with unclear direction. This paper proposes clarifying the optimum discount levels. Design/methodology/approach – This study asked 453 consumers to choose their own optimal discount levels (from 0-80 percent) for eight product categories across two distribution channels (physical store and online merchant). Then they were asked if the reason if they did not always select the deepest discount. Findings – Only 13 percent selected the 80 percent discount level for each product and each channel, despite seeing the exact price they would pay at each level. In support of attribution theory, 88 percent of the consumers attributed at least one cause for the deepest discounts. Most frequently cited were concerns about quality problems, damaged goods, or stolen goods. Consumers also opted for lower discount levels from the online merchant than from the physical store. There was a wide divergence by product category, with consumers selecting smaller discounts on tires and cereal and the deepest discounts on shirts. Research limitations/implications – Given the divergence across product categories, it is unknown how consumers would respond to categories not studied. Practical implications – This paper has revealed strong consumer perceptions about discount risks and the tradeoffs consumer make between risk and financial benefit across different product categories, both online and off – which can help marketing practitioners in setting discount levels. Originality/value – By allowing consumers to select their own preferred discount levels, it is shown that most customers attribute some risk to them.