In a previous post, I discussed how free stuff is worth every penny. An alternative to free stuff is discounted stuff. There has been plenty of discounting going on before and after the Black Friday and Cyber Monday shopping “holidays.” But this isn’t what I want to talk about. I want to talk about discounts that are only offered if you are willing to perform a task.
Sometimes you are lucky enough to get a discount just because you were in the right place at the right time and it was available to everyone. But more often, you have to perform a useless task to qualify for it. Take these activities, for instance: clipping coupons, finding online coupon codes, cutting out special box top offers, wearing a specific color of clothing on a particular day, writing an essay, giving out your contact information, or submitting a rebate form. Entire companies, such as Groupon and Living Social, have been built on the idea of offering discounts to help companies obtain new customers or get existing customers to shop more often. All these gimmicks are part of a strategy for enticing consumers to buy a product or to offer discounts to some people but not everyone.
These tasks provide no productive benefit to anyone and, in fact, cost time and money, which effectively increases overall prices. Somebody, after all, has to process the coupons, forms, or applications. Companies even outsource these tasks to other companies since they are too much trouble to bother with themselves. The sole purpose of this activity is usually to separate the people who are most price sensitive from those who are less so. It is an innovative way of selling products at more than one price at the same time by letting people decide which price they want to pay. To keep everyone from choosing the lower price, they require a trade-off that only some self-selected low-income (or cheap) individuals are willing to make. Economists call this price discrimination.
The trade-off, of course, is time–a resource that is even more precious than money. Consumers must surrender some of their most valuable limited resource to get a lower than average price. Overall, consumers pay a slightly higher price to pay the costs the business incurs to run the special promotions. Usually, the value of time is most appreciated by those who have a higher-than-average abundance of money. The more money one makes, the more likely one is to pay others to perform tasks that can be accomplished at a lower rate of pay or to forgo activities that might get them a discount.
But who pays the cost of these time-sucking activities? They are passed on to consumers, as usual, while all the benefits go to the business. Consumers who pay full price subsidize the cost of consumers who pay the discounted price. The older I get and less free time I have available, the less I participate in such nonsense. I have self selected myself out of the game and resigned myself to paying higher prices.
The timeless traditional solution to the problem of getting the maximum amount of money out of a sale has been to start with a high price and allow people to haggle until an agreement is reached. In some countries, this is still standard procedure. This also requires a sacrifice of time, but impacts both the buyer and seller. It can take time for a buyer to wear down a seller to get the lowest possible price. It also requires more skill and incentive on the part of the negotiators, so it does not scale well for large businesses. They simply cannot expect to find or train a large number of low-wage retail workers to succeed in such an environment. For high-priced goods, such as cars and homes, it is still a valuable tactic for selling to price-sensitive consumers.
Even the cost of college can be reduced by performing useless tasks. There are now many scholarship web sites and mobile phone applications that allow people to search for thousands of “scholarships” that are awarded on criteria that has nothing to do with academic or athletic achievement. They are usually available to people who are willing to submit information about themselves for a random drawing and may have a specific selection criteria, such as race, gender, religion, or interests. Many are contests of academic or creative skill that require one to write an essay, draw a picture, make a video, or perform some other task that is then evaluated, judged, and used to select a winner. These are not necessarily all useless tasks and may perform a function that is valuable to someone. They might generate marketing information or content that can be used to further market a cause or promote the interests of a company or non-profit organization. However, they may be nothing more than a random selection mechanism for channeling a limited supply of money to people who feel they need it.
As a society, we keep finding new non-productive ways to channel money from those who have enough to those who do not (or are willing to trade their time). It starts with higher tax brackets for those who earn more, but this is supplemented by price discounts for low-income or other targeted groups, and self-selected discounts. Productive paid work is slowly being undermined by alternatives that involve non-productive work.
All this wasteful make-work activity makes me wonder if there is there a way to channel these discount tactics into useful activity. How about channeling it into public service? Instead of spending time clipping coupons or performing other tasks, maybe people could be directed to help out at local food banks, homeless shelters, schools, or veteran’s hospitals in order to obtain credits that could be used like coupons. Charities have a difficult time getting people to volunteer, but imagine how much help they could get if major companies partnered with them to offer useful service-based discounts.
Here is how it would work. Companies or non-profit organizations would create service work that has some practical use and register these in an online service catalog. Companies who want to offer discounts or “scholarships” would select those activities that interest them and offer discounts to people who earn community service “coupons” through actual useful work. Want to get a discount with a company of interest? Sign up with the service and check the catalog to see what kind of work you have to do to quality. Then volunteer your time, get credit for it, and trade in your work coupons to get the discount.
What would these earned discounts be called? How about Service Discounts or Community Coupons. No, there has got to be something snappier. How about Volunteer Rewards? Kind of ironic though, since volunteer work isn’t really supposed to be done for monetary reward. Money for work is usually just called WORK. Many of us do it every day. Let me know if you think of a better name. Then I’ll get a trademark and find some venture capitalist who wants to back the next Groupon-style startup! The whole point is that some kind of productive work has to be done to earn the discount. No useless make-work. Everyone benefits. Charities get more volunteers and companies get to offer discounts to a self-selected group of consumers who are willing to put in the necessary time and effort. Sure, somebody has got to run the thing. Most of it can be automated, but someone also has to check for fraud to keep organizations from making up fake work and offering fake coupons.
I know–this is probably just wishful thinking! Unfortunately, real volunteer work might require far more time and effort than just clipping coupons. The work required has to be somewhat proportional to the benefits, but it is hard to compete with the limited effort required to clip coupons or fill out rebate forms. Companies don’t care about the actual work involved–only about how the marketing affects their bottom line. As long as companies are satisfied offering discounts for small amounts of time or information, they will continue to require trivial, time-sucking, make-work activities. Maybe it would be better to just make people dance and sing for money. Not only will it screen out people who can afford to pay full price, it will also provide entertainment for the rest of us. It wouldn’t be good entertainment, since most people can’t really sing or dance. It would be the kind of entertainment you can’t help but watch because it is just so bad–like a car crash or a train wreck. Like The Gong Show.
So, here is my challenge to retailers. Do you want to continue the tradition of driving lower-margin sales through the destruction of human productivity or do you want to start a new tradition of rewarding productive behavior? With some creative accounting, you might even find a way to write off your social contribution discounts as charitable donations. So, what’s it going to be? Real work or The Gong Show? It’s up to you.
Mini Case Study of a Typical Rebate Program:
- Time to fill in rebate form (on paper or online) and assemble documents
- Cost to copy form, UPC code, and receipt (paper and ink)
- Cost to mail in rebate application (envelope and postage)
- Time to follow up on denied rebate claim and/or cost to resubmit forms
- Cost to develop rebate program and web site (labor, equipment, materials)
- Cost to distribute rebate forms with products (paper, ink, labor for packaging)
- Cost to process rebate forms (labor or outsourced work)
- Cost to prepare and mail rebate check, card, or code (labor, paper, postage)
- Increased sales from consumers expecting a lower price (company profit)
- Consumers who actually obtain the rebate (consumer discount)
- Consumers who never actually obtain the rebate (more company profit)
A rebate program is a bit of a gamble. The amount of profit generated depends on the costs of running the program minus the number of rebates issued. If the number of rebates can be minimized, then the result is higher profit. The more time and effort required, the lower the redemption rate and the higher the profit. Most consumers never apply for or get the rebates to which they are entitled, which makes them a great marketing tool, but not such a good way to get a lower price.