The Discount Trap: How Brands Create the Behaviours They Hate

Ms Chan

Welcome back to Loyalty Unlocked. Today we’re stepping straight into one of the biggest traps in marketing — a trap so common that even the best brands fall right into it. We’re talking about how companies accidentally train customers to wait for discounts. Mark, I’m pretty sure every listener just winced a little. Ready to dig in?

Mark Sage

Absolutely. And you’re right — the wince is universal. Because every marketer has done this. You launch a discount, sales spike, someone in the business says “run it again,” and before you know it, you’re in a cycle you can’t escape. The tough part is: customers aren't behaving badly. They’re behaving exactly as we trained them.

Ms Chan

Yes! That’s what makes this so painful. We design the system… and then get frustrated when customers follow it. And you saw this so clearly during Covid in Hong Kong with Mannings. No tourists, sales drop, the brand leans heavily on discounts — and it works at first. But then people start shifting their shopping around the offer days like it’s a lunar calendar.

Mark Sage

Exactly. We literally saw shopping behaviour being reorganised. And the more predictable the offers were, the more predictable the behaviour became. And then the staff got trained too. There’s nothing more telling than the M&S bedding story — the assistant almost whispering, “Come back next week when it’s cheaper.” When your own team coaches customers to avoid full price, the problem is systemic.

Ms Chan

And this is what happened with Pizza Express as well. They became so synonymous with vouchers that paying full price felt… wrong. And it’s funny, but it’s also tragic. Because the brand slid from restaurant to coupon engine without ever intending to.

Mark Sage

Yes. I remember dining there once with my kids without the ubiquitous discount vouchers and paying full price - and it was actually a shock. Once you’ve conditioned customers to believe that full price is only for the uninformed, you have a very serious business challenge on your hands.

Ms Chan

So let’s talk solutions. How do we break out of the discount loop? Where does Motivational Economics come in?

Mark Sage

Motivational Economics is all about designing behaviour rather than reacting to it. Instead of paying customers to act with discounts, you motivate them with progress, recognition, or achievement. There are two lenses: Firstly, Gamification — the emotional, “this feels fun and rewarding” layer. Second, the Game Theory — the economic logic, ensuring the incentives make sense commercially. When you combine them, you create value without destroying margin.

Ms Chan

And this brings us to one of my favourite marketing stories ever — the Rory Sutherland Five Guys example. And I want to spend time here, because it’s honestly one of the clearest demonstrations of Motivational Economics I’ve ever come across. Mark, tell it properly, because it’s gold.

Mark Sage

Five Guys is fascinating because what they sell isn’t just burgers — it’s perceived generosity. Here’s what happens: You order fries. The staff fill the cup to the top… and then, they take an extra scoop of fries and dump it into your bag. Economically, none of this is special. Those fries are costed in. There’s no real giveaway.

Mark Sage

But psychologically, it’s massive. Why? Well, the overflow feels like a gift, and gifts evoke gratitude, not calculation. The customer thinks, “I’m getting more than I paid for,” even though they aren’t. Then, that emotion colours the entire experience — the burger, the brand, the price.

Mark Sage

Rory Sutherland calls this the magic of “net perceived value.” You haven’t added value — you’ve framed it differently. And that framing multiplies emotional value far beyond the actual cost.

Ms Chan

And this is the key lesson marketers miss! So many brands pour money into deeper discounts thinking value comes from amount. But Five Guys shows value comes from presentation. It’s the same fries. Same cost. Same margin. But a completely different emotion.

Mark Sage

Exactly. And we saw something similar when piloting loyalty approaches in Vietnam.

Ms Chan

Yes - You’ve mentioned this before in passing — the coupon paradox — but can you walk us through it properly. Because on paper, it shouldn’t have worked the way it did. Set the scene for us. What were you testing, and why?

Mark Sage

Sure. So in Vietnam, we were dealing with a very different market dynamic. Modern trade is still emerging, wet markets dominate, and shoppers are extremely value-sensitive — but not always in the way traditional retailers assume.

Mark Sage

We wanted to test mechanisms that could both reward existing behaviour and nudge additional visits. So we designed a simple fresh-food coupon: a targeted, limited-time reduction on a specific fresh product, delivered through a unique code printed on the pack.

Mark Sage

The idea was classic “precision marketing.” Identify the segment with the highest likelihood to buy again, give them an incentive, and watch the lift.

Ms Chan

Right — totally standard loyalty playbook.So what happened?

Mark Sage

Almost nothing. The targeted group barely moved. Sales didn’t shift enough to matter. And the first reaction from everyone was: “Well, maybe the offer wasn’t strong enough. Or maybe customers didn’t see it. Or maybe we targeted the wrong group.” All reasonable assumptions.

Mark Sage

But we wanted to be sure, so we tried something different and sent the exact same coupon to everyone. Every member. No targeting. No precision.

Ms Chan

Which is the kind of thing that would make a CRM team faint.

Mark Sage

Exactly. It goes against everything we’re taught. The thinking was: “Why waste an offer on people unlikely to redeem it?” But when we sent it mass… sales jumped by over 1.5 percentage points.

Ms Chan

Even though redemption barely budged?

Mark Sage

Redemption hardly changed at all. That’s the fascinating part. The coupon wasn’t driving behaviour through its use. It was driving behaviour through its presence.

Ms Chan

So the coupon basically stopped being a discount… and became a message?

Mark Sage

Yes! It became advertising. A brand signal. When it was targeted, customers treated it like a transaction. “Is this worth redeeming? Is the discount big enough? Does it justify the effort?” But when it went mass, it became something else entirely. It said: “We’re a retailer that gives good value.” Not to one small group — to everyone. Customers didn’t redeem it — they just felt better about us. And that feeling translated into sales.

Ms Chan

This is wild but also so intuitive once you hear it. When you target precisely, the offer is logical. When you go mass, the offer is emotional. Precision gives efficiency. Reach gives memory.

Mark Sage

Very true - The coupon became a reassurance signal:“We understand value. We’re here to help. You’ll always find good deals with us.” That reassurance created more uplift than the coupon ever could on a transactional level.

Ms Chan

It’s the Five Guys fries again, isn’t it? The scoop of fries in the bag isn’t about the fries. It’s about what the gesture communicates.

Mark Sage

Exactly that. Targeted coupons say, “Here’s a calculated offer based on your behaviour.”Mass coupons say, “Here’s something for everyone. We’re generous.” And generosity — perceived generosity — drives mood, trust, and memory.

Mark Sage

The real paradox is this: When you target, you get higher redemption but lower impact. When you go mass, you get lower redemption but higher impact.

Mark Sage

With the extra fries, many people don't actually want them and don't eat them - but the gesture is there. It was the same for the coupon. We hit customers who didn't buy that category so the coupon wasn't useful or used... but the intention was there and the value was communicated. This 'net perceived value' was enough to shift intention.

Ms Chan

And this is where the precision-marketing world sometimes misleads us. We optimise for redemption, but redemption isn’t the real goal. The real goal is behaviour change. And sometimes “waste” isn’t waste — it’s signal strength.

Mark Sage

It is. You don’t always need to personalise the value. Sometimes you need to personalise the feeling.

Ms Chan

This really reframes the role of offers. It says:“An offer doesn’t always have to be used to be useful.”

Mark Sage

Precisely. And that’s why I call it the coupon paradox: The value wasn’t in the coupon itself, it was in reminding customers who we were. And when you’re trying to win mindshare, that reminder is everything.

Ms Chan

Which leads beautifully into Tesco Challenges, because these challenges are basically Five Guys plus Behavioural Science plus Data plus Margin Control all woven together. On the surface they look like a sales promotion, but once you understand how they work… it’s a different universe. Let’s go all in on this, Mark — because people underestimate how clever this is.

Mark Sage

Tesco Challenges look deceptively simple: Three circles. A spend target. A progress bar. But underneath that simplicity is a remarkably sophisticated behavioural engine. Here’s what makes them different:

Mark Sage

Firstly, they differentiate between acquisition and stretch. For customers new to a brand, you can see there is a lower bar for entry - just one product purchase gets you started and unlocks value. The Challenge is acting as a gentle nudge: “Come back into this category.” It’s not asking for more — just asking for once.

Mark Sage

For existing customers, the bar tends to be set a little higher to stretch you - typically the first entry is around two products worth. So the first tier is deliberately harder and this breaks the default purchasing pattern and starts to teach trade-up behaviour.

Ms Chan

And already this is wildly different from a normal sales promotion. A promotion says: “Buy now because it’s cheaper.” A challenge says: “Buy now because you’re progressing.” One is transactional. The other is transformational.

Mark Sage

Yes - and the trouble with a 'buy one get one free' is it tends to simply cannablise sales from your existing customers. There is no stretch, just stocking up.

Mark Sage

The real magic though with the Tesco Challenge I think is how they then tier the challenge accumlation.

Mark Sage

Each tier is roughly 50% more than the last. So if tier one is two bags of frozen peas, tier two is three, tier three is four. It feels like natural progression. The reward value given tapers slower than the spend which is really clever. The customer earns more reward in absolute terms as they go up — but the percentage becomes less generous.

Mark Sage

For the customer it feels like it’s escalating. But the business is protecting margin. The unlock effect for the customer also helps the “goal gradient” kick in, so this is powerful psychology. As customers approach the end of a challenge — say you’ve spent five pound ninety of a seven pound target — the motivation spikes. Completion becomes emotionally irresistible. You’re not buying peas anymore — you’re buying closure.

Ms Chan

And that is the part no sales promotion ever captures. A promotion motivates the first purchase. A challenge motivates the final one. The last step becomes the most valuable one.

Mark Sage

And that really is motivational economics in action.

Ms Chan

I also love that this is essentially self funding!

Mark Sage

It is - most of the time, the brands fund the reward. But, the brand only pays out when the behaviour itself is incremental. If the customer didn't do something more, then the brand doesn't pay anything more. This is very different to a typical sales promotion. Also, the incremental margin often covers most of the reward anyway.

Mark Sage

The real gain here though is that the behaviour sticks after the challenge ends, so when you zoom out, the economics look incredible. Eagle Eye’s data, who run these challenges for Tesco, shows a four-to-one sales uplift, which is exceptional.

Ms Chan

But again, it’s not about the discount. It’s about the design. The challenge reframes the act of buying from cost… to progress.

Ms Chan

Which brings us back to Mannings and that 1000 hong kong dollar challenge. Because you effectively did a Tesco-style stretch behaviour. Light buyers — usually the hardest to move — suddenly went for it.

Mark Sage

Yes - let's step back a little as to understand the challenge, you have to understand the problem we were trying to unwind. For quite a while, Mannings had leaned very heavily on “member price days.” And because those discounts were predictable, customers had reorganised their entire shopping behaviour around them. They weren’t buying when they needed something — they were buying when the discount appeared.

Mark Sage

We had essentially created a market where full price felt like a penalty, not a default. So the challenge wasn’t just to lift sales — it was to retrain value perception.

Ms Chan

Right, because the moment customers believe the “real price” is the discounted price, you lose all control of the narrative. You’re not managing behaviour anymore — you’re following it.

Mark Sage

Exactly that. So we introduced a very simple challenge of Spend 1000 hong kong dollars in a defined period and earn a 20 dollar coupon. Now, 20 dollars is not a huge reward. It wasn’t meant to be. The purpose wasn’t to create a big financial incentive — it was to give customers a goal instead of a discount. A discount says: “Wait until the price drops.” A challenge says: “Move now to unlock something.” We wanted to flip the behaviour from holding back to leaning forward.

Ms Chan

And the 1000 dollar target — how did you set that? Because for a lot of light buyers, that’s actually quite a jump.

Mark Sage

That was intentional. We wanted the stretch to be slightly uncomfortable, but not unrealistic. Something that required an adjustment in behaviour, but not a reinvention of it. 1,000 Hong Kong Dollars was chosen because: It was meaningfully above the average spend for most customers, so it required multiple visits, and it then created a sense of progression — “I’m halfway there… I’m 80% there… I’m almost there.” It wasn’t about the value of the coupon, it was really about the momentum created by the target.

Ms Chan

So, what happened? Because this is the part that really surprised me when I first heard it.

Mark Sage

It surprised me too. When we looked at the data, we saw that two-thirds of the customers who hit the target had historically been spending far less — some were spending less than half on average in the same period before the challenge. These weren’t heavy buyers. They were the lighter buyer and yet, they were the most responsive.

Ms Chan

It really shows that loyalty programmes aren’t discount engines. They’re behaviour-change engines.

Mark Sage

Yes. And the core lesson here is that pricing and loyalty must be designed together. They either reinforce each other — or sabotage each other.

Ms Chan

If pricing teaches customers to wait, and loyalty teaches them to stretch… that’s a civil war.

Mark Sage

Exactly. You have to decide what behaviour you want to teach before you decide how to incentivise it.

Ms Chan

Mark, this has been one of our richest conversations. Because it reframes something we all deal with — the discount trap — into something we can actually control. Discounts teach customers to wait. Challenges teach customers to progress. Framing teaches customers how to feel. And the real takeaway? Behaviour is not something we chase. It’s something we design. Any final thoughts?

Mark Sage

Just one. Be intentional. Decide what your brand wants to teach — and design everything around that.

Ms Chan

Perfect. Thank you, Mark. And thank you to everyone listening. Join us next time on Loyalty Unlocked as we continue exploring how great brands build loyalty not through discounts — but through design.