Each year, I get an invoice from XM, the satellite radio company with whom I’ve had a subscription – one of my few admitted luxuries – since buying my car in 2009; a three-month subscription came complimentary with the vehicle. Each year, that invoice charges me a couple hundred dollars for the next year’s worth of service, which is paid in advance. And, each year, I call the folks at XM and tell them I’d like to cancel my service… even though I really don’t want to cancel it.
I’m immediately referred to XM’s retention department, where they do whatever they can to save me money. They always present me with a deal good enough for me to “back down” from my false threat. Since then, I’ve never paid more than 50% of the advertised price for a subscription.
Each time I call, I’m halfway convinced that they’re going to say, “Sorry, we’ve given you a discounted rate for X years; you’ll have to pay full price this time.” But they never do – and that leaves me wondering if I’m really saving money on my subscription, or if my so-called “discount” is already built into the price?
Saving Money Is Easy
Have you ever called your cable or Internet provider to ask for a discount? If you haven’t, you’re missing out. This is something I do regularly, along with calling my insurance providers. Sometimes, saving money on these services is as simple as asking for a discount; in other cases, you have to threaten to leave the company for one of its competitors to unlock the best rates. But ultimately – at least in my experience – if you ask you shall receive.
The same type of “easy money” savings happen at brick and mortar stores. Take a national retailer like Kohl’s. Each Sunday, I find a $10 off coupon affixed to my newspaper, which company policy tells me I can combine with the 20% off coupon I got in my email inbox. Plus, if I shop during “Power Hours” – typically Friday evenings and Saturday mornings – I can shave even more off retail prices. It’s not uncommon for me to leave Kohl’s with merchandise that retails for $100, but for which I paid less than $20. Supermarkets are the same way; my grocery store of choice doubles and even triples my coupons, gives me cash back for buying certain items, and offers special discounts if I use my loyalty card.
How Can Companies Afford It?
I know I’m not the only person who gets a great “discount” from my satellite radio subscription; nor am I the only person paying a low rate for telecommunications services, or clothes at Kohl’s, or food at the supermarket. Other savvy shoppers are clued in to the availability of these discounts too, no doubt.
So how do these businesses afford it? How can they stay profitable if they’re always “giving away” their products or services for less than the going rate?
They’re Upping The Prices
My hypothesis is simple: these companies are increasing the original sales price for their products and services. In other words, they’re building the discount they’ll ultimately offer you – to keep you happy, to retain your business, to make you feel like you scored a big win – into the full price. If someone (I’m looking at you, Mom) is willing to pay that full price without asking for a discount, then that’s their problem; the company isn’t going to give you the discount without a little elbow grease on your part. But I’ve got to believe that these companies are still making a profit – albeit a smaller one – on these discounted purchases; otherwise, why offer them in return for such little work on the consumer’s part?
Do you agree with my hypothesis? Do companies up the prices on products and services artificially, so they can liberally hand out discounts and still make a profit?