Discount Pricing in Austria: Insights into Retail Business Practices and HICP Coverage

Discount pricing – the strategy of reducing regular prices through quantity, seasonal, cash or promotional discounts, coupons, customer loyalty programs and the like – plays an important role in retail pricing and is widespread business practice in virtually all retail industries in Austria. This is the main result of our study, for which we surveyed major Austrian retailers and analyzed empirical data compiled by A.C. Nielsen. Moreover, we found that shoppers who participate in customer loyalty programs benefit from discounts more frequently and pay less on average than shoppers who do not. In Austria, three out of four consumers held at least one loyalty card in 2008. All in all, some 30 million loyalty cards were circulating in Austria at the time, with five cards per cardholder being the average. 90% of respondents indicated the prospect of instant rebates as the main incentive for holding loyalty cards. The retailers participating in the OeNB survey generate roughly one-third of their sales revenue under customer loyalty programs. On the consumer side, the average level of retail discounting (as established in the OeNB survey) adds up to a purchasing power effect of approximately EUR 300 million a year. In addition, the paper assesses the HICP coverage of discounts with a view to drawing lessons for policymaking. The current measurement practices are found to reflect some but not all forms of discounting. Looking ahead, it would be advisable to change measurement practices to catch the effect of customer loyalty programs, as they are common in many industries and tend to generate higher discounts than other discounting practices. The most suitable method would be to cover retailers who run loyalty programs throughout Austria and offer the same terms to all cardholders. Retail scanners could provide useful price data for inflation measurement.