Your Money
3:06 pm
Fri December 16, 2011

Amid A Blizzard Of Discounts, 'The Thrill Of The Hunt'

Originally published on Fri December 16, 2011 3:47 pm

Anybody with an e-mail box this time of year is in the middle of a storm — a 20 percent-off coupon lands, only to be topped by another for 30 percent off, then 40 percent, half-price. That's not to mention the free shipping offers piling up like snowdrifts as we head into the last full weekend of Christmas shopping.

Discounting is as old as the open-air bazaar, but technology — the proliferation of e-commerce and smartphones — has put it into overdrive. For retailers, that means ever-narrower margins as they struggle to compete not only against the shop next door, but also any vendor with a website anywhere in the world.

For price-savvy consumers, though, it's almost a sport.

Take Jill Barrowclough Alexander of Florham Park, N.J. "This is my form of gaming — much like my friends who gamble in Atlantic City[.] They spend — I save. It's all a game," she wrote on NPR's Facebook page.

Dan Callahan of St. Louis is another player. He writes that he "got hooked on the deal blogs in 2004, a time when it felt like it was me and 20 other people.

"Now, I prowl the deal blogs knowing that I am just one of more than a million people looking for these same deals. And the retailers are much more prominent — they seed the deals out there to stir interest, even if it's a cheap TV in one California Wal-Mart."

Economists have a name for the thrill of the deal that spurs many people on, sometimes obsessively. They call it "transaction utility."

"There's often a pleasure from getting a good deal over and above just getting the product," says Lars Perner, an assistant professor of clinical marketing at the University of Southern California. "It almost gives us a license to buy things we would not have otherwise bought."

Cynthia Jasper, a consumer science professor at the University of Wisconsin, warns that for a certain segment of customers, playing the discount game can cross the line into addiction.

The big difference today, compared to 20 or 30 years ago, is technology. Being able to find the lowest price by swiping your iPhone across a code in a store or by simply searching online has driven a wave of discounts from retailers finding it ever-harder to stay afloat in the sea of bargains.

James Dion, head of the retail consultant Dionco, points out that many consumers "don't bother to eat what they kill."

"Research shows that 30 percent of Groupon deals are never redeemed," he says. "That really leads me to believe that it's the thrill of the hunt. For some consumers, it is just scoring the deal."

For retailers, discounting is an old strategy, burnished a bit for the era of the Internet. What they're doing is promoting loss leaders — heavily discounted products sold at a loss that are designed to get customers in the door or on the website, where the hope is that they will buy other products at regular price.

There's a catch, though: Tough economic times and the Internet have made it too easy for consumers to cherry-pick the discounted item and leave behind the rest of the buffet, Dion says.

He calls discounting a "race to the bottom" and thinks a lot of companies are making a big mistake by discounting too much.

"Coupons are good when used in moderation, kind of like having two or three drinks a week, but a lot of these retailers are going overboard," he says.

The result? The Wal-Mart Effect. Customers simply demand ever-cheaper products, driving down margins even further, Dion says.

The problem, from the retailers' standpoint, is most acute when the price war pits bricks-and-mortar stores against online retailers.

Case in point: Best Buy vs. Amazon. Best Buy offered deep discounts and free shipping to claw back customers from the online behemoth.

"Sure enough, some of it worked, but the cost to Best Buy was huge," says Dion. "They just bought the business and when you buy nonprofitable business, the emperor has no clothes."

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