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How Discounts Can Reduce Service Quality

Discounts are one of the most popular promotional tools used by organisations. Urban Company, for instance, offers discounts of up to 30% on a variety of services ranging from cleaning to appliance repair to beauty. Sales promotion literature cautions against the overuse of discounts. Price cuts bring many benefits like boosting revenues, attracting new customers and helping to adjust excess inventory, but have adverse effects on brand image and reference prices. Recent studies suggest that discounts might also have a negative impact on frontline employees who provide the actual services. A study looked into this issue and tried to answer the question: How do customer discounts in the services sector affect frontline employees?

The study investigated how discount redemption (whether a customer utilises an offered discount), discount frequency (how often is the service offered at a discount), and discount depth (level of discount) affect frontline employees’ work meaning beliefs and workplace responses. Work meaning beliefs refer to workplace attitudes of employees regarding their value and the value of their work to their employers. Workplace responses refer to the actions resulting from these attitudes.

The study found a significant negative impact of discounts on frontline employees’ work-related attitudes. Employees delivering those discounted services felt that the work done by them was not valued by the organisation, hence it was being offered at a discount. They also felt that they were underappreciated by their employers.

This, in turn, negatively affects their workplace responses like motivation, identification with the organisation’s values and goals, and turnover intention (intention to change jobs voluntarily). Motivation is reduced, so is identification with the organisation, while turnover intention increases when employees feel undervalued and unappreciated. All of these factors invariably impact service delivery and quality of service, which can hurt customer experience to the extent that the positive impact of discounts gets nullified. It is thus critical for organisations to reflect on these findings and manage the effects.

While eliminating discounts may be difficult, the negative impact on employees can be mitigated by managers providing feedback. Positive feedback can effectively restore the sense of competence and appreciation that is hurt by discounts. Clarifying the purpose and nature of deals can also help employees see that the reduced prices do not reflect their capabilities or efforts.

Another option is to reduce the exposure of frontline employees to discount communications to customers through technological tools. For example, online booking of services is an excellent way of creating distance between discounted services and frontline employees. This has become common practice for travel organisations like airline companies.

Food delivery companies like Swiggy and Zomato apply discounts on the product (food) rather than the service (delivery). Firms offering both products and services could adopt this tactic to ensure that employees are not negatively impacted by the discounts.

Discounts are a double-edged sword and need to be used prudently. But when used, managers should balance the positive customer impact and better maintenance of work beliefs of frontline employees by using the tactics suggested above.

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