Self-sabotage. That’s what we call it when someone or something actively takes steps against that which it tries to accomplish. We all aim to move product regardless what we’re selling. Cars, soccer boots, energy drinks, law services, even ourselves. And there’s the place of the brand. People love brands. People buy love. A strong enough brand gives us that sense of connection. It colours our experience with the product. And when making business decisions about a brand the temptation is to still engage standard economics even though other dynamics are in play.

Are revenues are falling? We cut costs! We’re looking to move more of our product? We advertise! Better still, we use promotions, we discount. Discounting sounds lovely, but is it? Dan Ariely and some other economists set up a revealing experiment. It was nothing fancy. It was about SoBe Adrenaline rush, a beverage that claims to increase mental acuity. To test this claim, they administered a word jumble challenge for 3 groups of students few minutes after they had this drink.

First, the “no SoBe group”—the control group—were given the test without taking SoBe. The second group were given the drink and charged $2.89 for the drink. That’s our “premium SoBe group”. Then a third group was told that they were fortunate to get SoBe at an amazing “discount” at 89cents.

After the test results came in, guess what? SoBe drinkers performed better than the control group (Yay! SoBe). Yes, this is experimental evidence that a drink can make you smarter, at least enough to impress Dan Ariely. But, here’s where it gets interesting, the discount SoBe group performed worst of the three groups, that is worse than the no SoBe group and worse than the premium SoBe group.

So in the end it wasn't a case for the drink, since the brain boosting effect wasn't present in both sets of SoBe drinkers. What was the difference between these two groups you wonder? Maybe it is a case against discounting. Another study at the Ohio state University theatre department had telling insights. A season pass purchased at $15 would grant you access to all of the theatre’s shows for that semester. 60 already interested season ticket holders unknowingly partook in an experiment. Three types of tickets were randomly assigned: first was the standard $15 ticket, a no discount scenario; second was a $2 discount ticket, the small discount scenario; the last scenario, a $7 discount ticket, the large discount scenario. The discount recipients were told that it was part of the theatre’s current promotion.

Given what you've read about the SoBe experiment, I'm sure you’re not in a hurry to guess the results of this one. Well, just like our SoBe drinkers, the price affected how well these theatre goers enjoyed the shows, as measured by how often they returned to the theatre (since they already had tickets; returning for the remaining shows was at no perceived extra cost) The premium ticket holders, (the no discount scenario) were present for more shows than either of the discount holders (both the large and small discount recipients). And even more interesting was the fact that the size of the discount didn't matter much- only the fact that the tickets were discounted (See!). Both $2 and $7 discount recipients refused to revisit the theatre as often as the no discount group. Somehow the discount reduced their enjoyment of the shows (all three groups bought tickets to the same shows and had equally good seats). The singular fact they were awarded a discount—any size of discount—made them less likely to use service.

Getting a discount clearly affects the amount of value you attribute to the discounted item. I think we have a case against discounting.

These experiments go to show how much price shapes not only our expectations, but also our experiences. When you pay $800 per hour for a lawyer, he has to be obviously better than the $300 per hour lawyer (or how else could he command such a price?). At least that’s the way it seems to you. And the truth is, you would still feel that way even if they did exactly the same thing. My argument is simple.

Discounts are evil when you are on the sell side.

Listen to Dan Ariely:

“When you get something at a discount, positive expectations don’t kick in strongly.”

Hurray! You succeed in decreasing customer satisfaction, and that’s the first step towards a downward spiral. Discounting will only lead to reduced customer experience. And as consumers don’t get the same level of satisfaction, you’ll resort to more discounting to counter the fall in sales. And no, you can’t raise prices, as customers will react badly even if you’re selling eggs. Professor Daniel Putler, a former researcher at the US department of agriculture conducted a study into the demand cycles of eggs all over Southern California. He observed that when egg prices dropped, egg sales increased. However, when the prices were increased, the decline in sales was a lot sharper (>200%).

What he discovered is what we all know intuitively but choose to push to the back seat when we use standard economic theory-

“Consumers are more sensitive to price increases than to similar decreases.”

Remember your last trip to the store where you refused to buy an item because it cost just a little more than you budgeted? Dear Manager, don’t give discounts. I would advice that you look for another way of reducing customer satisfaction if that’s what you are after. Secondly, if you decrease the price (discount) then of course, sales pick up; consumers buy just a little more. But when you increase price (stop discounting) demand falls a whole lot more ☹.

That’s self-sabotage for you and your brand. You should drop price if you need to, but do not discount.