Retail Discount Concurrency – Compounded Discounts

Retailers love compounding discounts. Just the other day, I saw 50% off on top of another 50% off. By the face value, it feels like free, while in reality, it’s 75% off total because the second 50% off is on the discounted price.

Let’s get into more details.

Order of compounding: which discount to apply first?

Discounts are sponsored by various agents. Often retailers want to apply vendor-sponsored discounts first, and retailer-sponsored ones last.

Sometimes they don’t care. Even in that case, technically, we still need to set some order. We have 3 basic discount methods: unit price, amount off and percentage off. To get a consistent result, we need to set some order.

Compounding is not always straightforward.

It’s trivial with compounded simple discounts.

It’s also manageable with 1 compounded mix and match (multi-item) discount and multiple compounded simple discounts. In fact, if you walk into any of major grocery stores in the United States, you would see a discount of buying 6+ wines to get additional 10% off on top of individual discounts.

For compounded mix and match (multi-item) discounts, it gets messy because each of the 2 mix and match discounts may operate on different sets of items, and the end results will likely confuse customers, and retailers as well.

Not sure if I made myself clear in the last sentence, but you can take it yourself: say you need to buy 2 keyboards ($20 each) and 2 mice ($10), what deal would you get with the following compounded mix and match discounts?

• Buy one get least expensive one for 1 cent, for any of the two.
• Buy one get least expensive one 50% off. It has to be one keyboard and one mouse.

What happens when we have another non-compounding discount covering the same product(s)?

The key question is whether you want to have compounded discounts to compete with non-compounded discounts. In general, retailers do.

And take into account multiple compounded multi-item discounts and order of compounding.

In fact, the more and deeper I think of it, the crazier it drives me.

In reality, luckily, retailers often prefer to offering easily-understandable discounts.

As a matter of fact, I haven’t seen a single case of 2 compounded mix and match (or multi-item) discounts in any retail stores.

We need one single rule to make it (a lot) easier: do not compound 2 multi-item discounts together. In other words, when it happens - it's not always easy to prevent it from happening - they compete.

Related: Retail Discount Concurrency – Best Deal Knapsack Problem