Deals and promotions are about price discounts. To consumers, price discounts are about two things: 1) the absolute offer price, and 2) the magnitude of the discount. While the quoted offer price directly affects the bottom line of the selling merchant when manipulated, the usual price or original price does not. Yet changing the advertised usual price has a discernable effect on consumer behavior.

Consider 2 deals: a 75%-off buffet dinner at a discount price of $25 vs. a 20%-off (comparable) buffet dinner at a discount price of $20. It is not unreasonable to expect that the former deal sells better, because there is a perceived free and extra $75 in value for the former deal instead of a mere free and extra $5 in value in the latter deal. In other words, consumers perceive that, for every dollar spent, they get $3 in free value for the former deal but, for every dollar spent, they get only $0.25 in free value for the latter deal. Group buying deals work, because the usual price provides consumers with a benchmark of “how good of a deal” they are getting, though the usual price is usually just there to exploit the irrationality of consumers.

When it was reported that Lashou.com (one of China’s most successful Groupon clones) was involved in price fraud in that they regularly inflated the usual price of deals, it made us wonder if it is a common practice across the industry, not just among group buying platforms. Some regulation through the law is necessary, but we believe that, the more rampant this practice becomes, the more discerning consumers will become as well, defeating the purpose of price manipulation. In other words, the market will become smarter and, in fact, more doubtful.

As a turn-key hosted group buying solution company, we are against price misrepresentation by merchants, because it ultimately turns consumers into cynics. It eventually creates a stigma attached to deals and promotions – that they are scams. Price misrepresentation is bad business sense, and those guilty of it ought to seriously reevaluate the long-term effects of their strategy on themselves and the industry at large.