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Goodbye 50% off sales: Why deep discounts are ending

Posted at 1:07 PM, Apr 23, 2015

NEW YORK — If you’re like me, you rarely walk into stores until the 50% off signs pop up. We’ve been living in an era of deep discounts since the Great Recession. That trend has only exacerbated with the rise of websites and apps that let us compare prices instantly.

But bargain hunters beware: Titans of the business world want to end those mega deals. On Monday, Royal Caribbean cruise lines flat out said in a statement that it is looking into its pricing model and taking steps “to eliminate last minute discounting.”

That’s business-speak for goodbye 50% or more discounts. Royal Caribbean is able to do this because bookings are back up as people are once again spending money on vacations.

It’s not just cruises. Harley-Davidson too said it will no longer be playing the price wars.

In its quarterly earnings report this week, the company repeatedly cited “significant price discounting” from other motorcycle makers as a headwind. Some are offering discounts of up to $3,000. But Harley has had enough.

“We will continue to protect our premium brand,” Harley executives said on a call with Wall Street analysts. “We will not take a short-term view of the current competitive situation and compete by discounting.”

Sean Ryan, a partner at A.T. Kearney who specializes in sales and strategy, says companies have become increasingly aware of the psychology of pricing.

“When consumers see high prices, they immediately associate high value. When they see low prices, they immediately associate low value,” Ryan notes.

You can partly blame Wall Street greed for the change. It wants companies, especially retailers, to be more profitable. The general playbook to lift profitability is to cut costs or raise prices (or both).

For consumers it’s a lose-lose situation.

The price hike trend is already underway in the so-called “affordable luxury” and “mid-tier” brands .

Coach is in the midst of a massive overhaul of its handbag and shoe line. The general consensus is the brand got too overexposed on Main Street. Customers grew accustomed to buying the bags at outlet shops and Coach lost its luxury cache in the process. The turnaround plan is to limit the discounts and create more high-end products that retail for hundreds of dollars.

In some ways, it’s a sign that brands are betting that American shoppers are ready to open their wallets. It’s a good sign for the economy if middle and upper middle class consumers are willing to pay a premium for better quality and certain brands again.

The economy has to be in decent enough shape for this “upscaling” to occur.

But for shoppers who have become experts at milking the mega sales, it will be tough to adjust to a new reality, where the 50% off sign just doesn’t show up much, if at all.