IGCSE Travel and Tourism Practice Exam

What is the primary purpose of discount pricing?

1. To maintain high profit margins

2. To clear out inventory

3. To reduce costs for loyal customers

4. To create the perception of a bargain

The correct answer is: To create the perception of a bargain

The primary purpose of discount pricing is to create the perception of a bargain, which can attract customers who are motivated by value and savings. When a business offers discounts, it signals to consumers that they are getting a good deal, which can stimulate interest and increase foot traffic or online visits. This perception often leads to higher sales volume as customers feel they are making a wise financial choice by purchasing discounted items. In many cases, the visibility of discounted prices can lead consumers to make impulse buys or explore additional products they may not have considered otherwise. This strategy is particularly effective in competitive markets where consumers have multiple options, as it can differentiate a brand by showcasing affordability. Discount pricing does not primarily serve to maintain high profit margins; in fact, it may lower them in the short term as products are sold at a reduced price. Similarly, while clearing out inventory can be a secondary effect of discount pricing, the main intent is often focused on enhancing customer perception rather than merely managing stock levels. Reducing costs for loyal customers could also be a benefit, but the driving force behind discount pricing is to leverage that sense of getting a bargain to draw in a larger customer base.