One of my favorite insights about pricing came from thinking about why bespoke tailors never discount. The fun bit was the realization that sales (discounting, coupons, etc. etc.) are about impulse control. Both players, Betty the buyer and Sam the seller, are tempted by discounting.
Sam discounts because it helps to close the deal, since it helps Betty to overcome her impulse control. So Sam is very tempted; and that temptation means he’s got an impulse control problem too. At it’s core the discounting acts to expedite the sale, it’s an accelerant.
But yeah, if Betty knows that Sam is given to discounting that knowledge dampens sales! For example there is a men’s clothing store near my office, but I know that everything in can be had for 40-60% less than the usual asking price. But only if I play the pricing games this vendor uses. I “just” need to puzzle out what those are and then: wait for the sale, get the coupon, and buy the gift card in the secondary market, order online with delivery to store, and finally exchange what I bought for the item I really wanted in the store.
When the bespoke tailor clarifies that he never discounts he’s signalling that his goods are a luxury item with a lot of bundled benefits. Betty should not be making the purchase decision based on price! Price should never be the deciding factor in the purchase of a luxury good.
Presumable Brilliant Bob can skillfully compute the cost of the dampening v.s. the benefit of the accelerant. The drug store knows that a lot of their buyers need it now, and hence has less fear of the dampening. The big department store knows that most of their Betty’s are skilled shoppers and enjoy the game. The combinations are numerous.
But one place this leads is the realization one of the many inputs to price setting is the how much discounting head room the seller wants. So when Amazon raises the price of Amazon Prime to $99 they may hope that Betty thinks this is because it’s become so much better. More features, valuable, and expensive to deliver. But I suspect it’s that they decided to play more pricing games with that offering.
So today you can buy Amazon Prime for $67 v.s. $99. (You’ll need to go read some of the threads in the forums where pricing game player’s hang out to see various schemes for playing that deal well.)
Which means Amazon Prime is now another product about which Betty may mutter “I never pay retail.”