Pricing and “Deals”


A great deal on the surface, but dig a little deeper!


A bigger deal is a better deal right? I say, WRONG! I subscribe to Living Social, the daily deal site that offers nice discounts for local activities, direct to my inbox! However, a recent daily deal had me baffled on the pricing and “deal” nature of the coupon.

The deal advertises $80 to spend at Mi Piaci Italian Restaurant, on sale for $40. It does not include alcoholic beverages, so I was pretty curious to see the menu prices at this Italian restaurant. Upon clicking over to the menu, the appetizers, entrees, and desserts seemed pretty low-priced for a $40 coupon for $80 worth of food. In fact, my husband and I could both order the most expensive entree and just barely over-spend our coupon! Essentially, the coupon is over-priced for the restaurant. Why would I pay $40 for a coupon for $80 worth of food, when I could go to the restaurant outright and spend about $40 without the coupon? The goal of a coupon is to get a person to either return in the future, or spend beyond the coupon amount when they redeem the coupon. Thus, with this pricing scheme, it’s going to be hard for me to do either one! Instead, I would suggest pricing this Living Social deal at $20 for $40 worth of food, as it would encourage diners to splurge on higher-margin items like alcohol or dessert. Currently, the coupon amount allows me to order an appetizer, semi-expensive entree, and dessert, meaning that I probably won’t feel the need to order other “extras” to increase my total ticket. If, however, I had less to spend from the coupon, but still a significant reduction in my total check, I might be inclined to order a glass of wine or dessert.

“Deals” are actually a pretty complex mind-game. You want people to feel like they’re getting something great for the price of something good, but you don’t want to stifle their “need” to spend a little more. If you make the deal too sweet, you kill the desire to over-spend the coupon, which decreases your profit margin on the coupon. You also alter the anchor number for the customer’s next purchase experience, making it more difficult for you to recoup your promotion costs. I’ve seen this happen with pizza, where coupons have significantly lowered my anchor number for the cost of pizza. I never pay full-price for pizza, as there’s always some kind of promotion at any of the major pizza chains. After years of receiving $10 large, 5-topping pizza deals, I’m not willing to pay more than $10 for a pizza! In this case, my anchor number will probably be set higher. I’ll remember that my check from the restaurant came to $80, but I doubt I’d see $80 worth of value from that meal (since the prices are low), reducing the chances that I’d return to Mi Piaci when I’m in the mood to spend either $40 or $80 on a dinner date.

By mis-pricing this coupon, Mi Piaci and Living Social have effectively changed my price-point expectations, and lowered the profit-margin, as I have no need to over-spend my coupon. And, as I’m concerned that I’d be able to meet the $80 limit in one dinner, I’m inclined not to buy the coupon at all! Everyone loses in this situation, and I think a reduced coupon price for a reduced redemption value would actually better serve this whole transaction!

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