The concept of discounting has permeated various sectors, influencing consumer behaviour, business strategies and market dynamics. After all, we all like the thought of a bargain! Although for some the phrase ‘value for money’ will spring to mind.
However, this multifaceted phenomenon extends beyond mere economics. It can be useful to explore the psychological traits and behaviours discounting evokes in individuals. As we explore discounting in domains such as finance, coaching, retail and hospitality, we must consider its profound impact on individual psychology and behaviour. [However, please note that this article provides a brief overview of the discounting phenomenon and its psychological impacts across various sectors. It is intended to provoke thought and reflection rather than serve as exhaustive research or personalised advice.]
Financial Discounting: Balancing Immediate Gains & Long-Term Stability
In finance, discounting is a method used to figure out how much ‘future’ money is worth in today’s terms. This helps with making decisions about investments, setting prices for bonds and deciding if a project is worth pursuing. The “discount rate” is a key part of this process—it represents the cost of borrowing money or the return expected from an investment.
For example, when financial experts evaluate investments, they adjust future earnings to reflect their value today. A higher discount rate means there’s more uncertainty or risk, which lowers the current value of future money. On the other hand, a lower discount rate suggests more stability and confidence in future earnings, increasing their present value.
Manipulating the discount rate to portray an optimistic investment outlook can lead to inflated asset valuations, creating market bubbles that eventually burst.
John Smith, a renowned financial analyst, aptly noted, “Overly optimistic discount rates can lead to inflated asset valuations, creating a bubble that inevitably bursts, causing market disruptions and investor losses.”
Psychologically, financial discounting reveals our inherent preference for immediate rewards over future gains, known as hyperbolic discounting. This bias can lead to suboptimal investment decisions, as individuals prioritise short-term benefits despite longterm repercussions. And without getting too controversial – it’s a bit like the current state of politics, where the next election often trumps the next generation!
Hospitality Industry: Discounts and Customer Perception
In the hospitality industry, discounting strategies aim to attract guests and fill rooms during off-peak periods. While this can increase occupancy rates, it may have unintended consequences on customer perception and brand positioning.
Discounted rates might attract budget-conscious travellers but they might be less likely to spend on additional services, limiting revenue opportunities from ancillary offerings. Additionally, reliance on discounts can erode the perceived exclusivity and luxury associated with a brand, diminishing its market positioning.
Maria Gomez, a hospitality consultant, observed, “While discounts can boost occupancy in the short term, they risk diluting the brand’s value proposition and attracting a clientele that does not contribute significantly to overall profitability.”
From a psychological standpoint, frequent discounts in hospitality can lead to price anchoring, where customers expect and wait for discounts rather than paying full price. This behaviour reduces the perceived value of the service, making it difficult to sustain regular pricing, and if I am honest, I can completely relate to this. I will wait for the discount rather than step in and make the booking!
Retail Discounting: The Race to the Bottom In retail, discounting drives sales, clears inventory and attracts customers. Seasonal sales, clearance events and promotional discounts boost short-term revenue. However, constant discounting can be detrimental in the long term. An example of this is a prominent retail company that suffered due to continuous discounting, ultimately leading to liquidation. The retail company was called ‘99 Cents Only Stores’ (founded 1982). Despite efforts to navigate the challenging retail landscape, the company faced significant financial difficulties, exacerbated by persistent discounting. This strategy undermined their profitability and contributed to their decision to shut down operations and liquidate all assets, including merchandise and real estate – April 2024 (Revista Merca2.0).
Frequent discounts train consumers to expect lower prices, reducing their willingness to pay full price. This erodes profit margins and can lead to a vicious cycle where businesses offer deeper discounts to sustain sales volumes. Additionally, it can damage brand reputation and perceived product quality.
Marketing expert David Brown articulated this phenomenon as a “race to the bottom,” where companies continuously undercut each other’s prices, eventually reaching a point where profitability is unsustainable. “In the pursuit of short-term gains through discounting, businesses often undermine their long-term viability, sacrificing sustainable growth for immediate revenue,” he said.
Retail discounting exploits the scarcity principle, where limited time offers create a sense of urgency, compelling consumers to make impulsive purchases. However, over time, this can condition consumers to wait for discounts, diminishing the perceived value of regular-priced items. I am reminded of shopping in Supermarkets where I, the consumer, am enticed with bulk-buy discounts or “3 for 2” deals, creating the impression that I will make a significant saving. However, in truth, as consumers we are now recognising that these offers may not be genuine bargains. Often, the prices of items included in such deals are inflated, reducing the actual discount. Additionally, the necessity to purchase in larger quantities can lead to waste, especially with perishable goods, thus negating any perceived savings. This awareness has led me to be extra cautious over any offer and I will take some time to really determine whether there is true value to be had or is it purely a marketing gimmick.
Reduced Fee Coaching: Balancing Altruism and Professional Integrity Coaches offering their services at reduced rates or minimal fees aim to make coaching accessible and support those in need. While this altruistic approach is exactly what you would expect from a coach, it can raise concerns about professional integrity and sustainability.
Reduced fee coaching may benefit the client but may lead to financial strain for the coach. It risks setting a precedent that coaching services are not worth fair compensation, undermining the profession’s value. This is not in relation to coaching that is offered by coaches in training, which is something here at Sandown Business School encourage, it is when the coach’s livelihood depends on their financial income from their coaching practice.
“Offering discounted services should be balanced with full-rate sessions to ensure financial health and maintain the perceived value of expertise,” notes Pheona Croom-Johnson.
There is also the challenge that clients paying reduced rates may value the service less, potentially leading to lower engagement and commitment. For coaches, insufficient financial compensation can decrease motivation and has the potential to increase stress. Perhaps the offer of Pro-bono coaching should be a standalone offer rather than a primary pricing strategy?
Discounting in Coaching: The Double-Edged Sword
In the coaching field, discounting courses and sessions aims to attract a wider audience and make coaching accessible. However, this strategy can present numerous challenges.
Consider a coaching course offered at a reduced rate. The initial influx of participants might seem successful, but long-term implications could be detrimental. Discounted pricing may inadvertently devalue the course, leading to lower engagement and commitment from participants. Additionally, it might attract individuals not genuinely invested in the coaching process but enticed by the low cost.
Dr. Jane Doe, a leading coach educator, pointed out, “While discounting can democratize access to coaching, it often compromises the quality of interaction and the seriousness with which participants approach the sessions.”
Taking a psychological view, discounted coaching sessions can create a perception of lower value, affecting motivation and engagement levels. When individuals pay less, they may subconsciously assign less worth to the service, reducing their commitment and effort.
What is the Opportunity Cost when choosing a Coaching Programme?
Opportunity cost is a phrase I often use. What is it? Opportunity cost is what you give up when you choose one option over another. If, for example, you spend time and money going to a movie, you cannot spend that time at home reading a book and you can’t spend the money on something else. Taking another example and using coaching. Here’s how an ‘opportunity cost’ connects to the financial decision-making process in choosing a coaching programme:
- Choosing Immediate Affordability Over Long-Term Value:
When a coach, leader and/or manager opts for a discounted coaching programme because of its immediate affordability, they might forgo a more expensive programme that offers better long-term benefits, the opportunity of a personal credential in coaching, training with an accredited provide, and/or confidence for their career advancement. The opportunity cost here is the potential for higher quality training and greater professional growth that could have been achieved with the more comprehensive programme. - Allocation of Time and Resources:
Selecting a discounted coaching programme can mean allocating time and resources to a potentially less effective or less respected course. The opportunity cost is the other high-quality programmes that could have provided more robust training, better networks and stronger professional credentials. - Balancing Risk and Reward:
By choosing a coaching programme that appears to be a good deal due to its discounted price, coaches, leaders and/or managers may be exposing themselves to the risk of subpar education. The opportunity cost involves the potential benefits of enrolling in a programme with a proven track record, even if it comes at a higher cost, thereby ensuring better outcomes and professional satisfaction. - Preference for Immediate Savings:
Hyperbolic discounting illustrates how the preference for immediate savings can lead to poor educational choices. The opportunity cost here is the superior coaching techniques, deeper insights and advanced skills that might have been acquired through a more rigorous, full-priced programme, leading to greater long-term benefits and as previously stated, elevated career success.
Understanding the role of opportunity cost in choosing the right coaching programme supports coaches, leaders and/or managers make more informed decisions. By recognising what they might be giving up, they can better evaluate whether the immediate savings are worth the potential long-term sacrifices in their professional development.
Five Questions to Ask Yourself When Attending a Discounted Coaching Programme
- What are my goals for attending this programme? How does this discounted programme align with them?
Reflect on what you aim to achieve and ensure the programme meets your specific needs and objectives. - Am I genuinely interested in the coaching content, or am I mainly attracted to the discount?
Assess whether your primary motivation is the value the programme offers or simply the reduced cost. - How is the quality of the coaching and the qualifications of the coach?
Investigate the coach’s credentials, experience, and reputation to ensure you will receive high-quality guidance. - Will the discounted rate affect my commitment and engagement in the programme?
Consider whether paying less might impact your level of seriousness and dedication to the coaching sessions. - Are there any additional costs or commitments required that I should be aware of?
Look into any potential hidden costs or future financial commitments that might arise from participating in the programme.
Comparing Discounting Across Sectors
The examples of discounting in finance, coaching, retail, and hospitality illustrate the diverse applications and implications of this strategy. In finance, discounting helps determine the present value of future cash flows, guiding investment decisions. In coaching, discounts aim to democratise access but risk devaluing the service. In retail, discounts drive sales but can erode profit margins and brand value. In hospitality, discounts boost occupancy but can affect brand positioning and perceived value.
Despite these differences, a common thread is the psychological impact of discounting on individuals. Whether it is the preference for immediate rewards in finance, the perception of value in coaching, the urgency created in retail, or the price anchoring in hospitality, discounting influences consumer behaviour and expectations.
Conclusion: Reflecting on the Value of Discounting
The discounting phenomenon, while a powerful tool for driving short-term gains and making services accessible, presents numerous challenges that cannot be overlooked. From financial markets to coaching, retail and hospitality, the implications of discounting are profound and multifaceted.
As we conclude this exploration, it is imperative to reflect on the value of discounting. How do we balance the immediate benefits of attracting customers and increasing accessibility with the long-term sustainability and perceived value of our products and services? Is discounting a strategic necessity, or are there alternative approaches that can achieve similar goals without the associated pitfalls?
These questions invite us to critically examine our approach to discounting and consider innovative strategies that preserve the integrity and value of our offerings while remaining competitive and inclusive. The journey to finding this balance is complex, yet essential for sustaining growth and maintaining the trust and loyalty of our clients and customers.
