[Pricing Nugget #037] Discounts Lower Prices and Morale

Imagine you are giving discounts to customers, and you think you have a very solid understanding of your customers and how they perceive your discounts.

But wait, there is a second audience: your frontline employees.

How do they feel about your discounts, and how do your employees perceive them?

We will find out today.

Employees develop work-meaning beliefs in their jobs and the meaning of their tasks.

Examples are task significance and perceived appreciation.

To calibrate their beliefs about the meaning of their work, employees look for external social cues that give them a hint of how they should believe about their tasks and their work.

These external cues could be discounts given to customers.

Researchers ran a study involving travel agents and personal trainers. In these studies, they checked how customer discounts affected the work-meaning beliefs of travel agents and personal trainers.

The research team investigated how seeing a customer redeeming a discount affects the work-meaning beliefs of employees. How do discount frequency and discount depth impact work-meaning beliefs?

The study found that discounts are a negative external cue that lowers the perceived task significance and the perceived appreciation of frontline employees. Employees feel their work is less valuable if customers receive a discount.

This is really a problem because work-meaning beliefs impact workplace responses.

If the work-meaning beliefs are lowered,

• the intrinsic motivation of employees is lowered,
• it makes employees feel more ambivalent about their employer; they identify with some aspects of the employers, and they don't identify with other aspects, and
• the turnover intentions are higher, so your employees are more likely to leave you

This is the indirect effect of customer discounts: customer discounts demotivate your employees, make them identify more ambivalently with their employer, and your employees are more likely to leave you.

This chain of effects has to do with the effect of task significance and perceived appreciation as the bridge between customer discounts and workplace responses.

Today we learned that discounts might have a negative effect on your employees. This does not necessarily mean that you should give up your discounts.

But what can you do?

You have three levers.

1. The first lever is to address the perceived appreciation and give more appreciative feedback to offset the negative effect of price discounts altogether.
2. The second lever is to be more transparent about why you give discounts and communicate openly about your discounts, your discount strategy, and the rationale behind them.
3. And lastly, make discounts less salient to your employees. You might give personalized discounts that are invisible to your employees and service staff.