How businesses cheat with discounts

By MUNGAI KIHANYA

The Sunday Nation

Nairobi,

15 May 2016

A leading shoe retailer in Kenya often runs promotional campaigns promising customers something like “30 per cent discount on your second pair of equal or less value”. Anyone reading the advertisement only registers the “30 percent discount” part of the message and therefore gets a rude shock when the purchase receipt is printed out.

Suppose you go in and buy two similar pairs of shoes costing Sh1,000 each. The total price comes to Sh2,000 so you expect to get Sh600 off (30 per cent) and pay Sh1,400. That’s not what happens.

You only get the discount on the second pair. So you are charged Sh1,000 for the first and Sh700 for the second one. That is, you pay a total of Sh1,700. So, in reality, the percentage discount is Sh300 divided by Sh2,000; which is just 15 per cent!

Thing are even worse if you bought one pair of shoes priced at Sh1,000 and another (perhaps some flip-flops) at Sh100. This time, your 30 per cent discount will be calculated on the “second pair of less value”; that is, the one costing Sh100.

So, you will get just Sh30 off and you pay Sh1,070 instead of Sh1,100. The percentage discount in this instance is less than three per cent!

Now why would a business do things in such a complicated manner? I have pondered upon it for quite some time and the only answer that comes out is plain and simple dishonesty. 

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Safaricom Limited published its annual financial report this week and, true to form, the billions of shillings keep going higher and higher. This time round the profit before tax stood at Sh56 billion – or, about a half of a billion dollars!

After accounting for taxation, the profit belonging to the owners of the company comes down to Sh38 billion – still a very large figure. But is it “too much” as has been suggested by many?

The last time I commented on Safaricom profits was in May 2014. At that time it had declared Sh23 billion after taxes. My conclusion was that, when this figure is placed in its proper perspective, it was just a fair and reasonable amount.

People often forget that Safaricom Limited is a very large company: with 700,000 owners; over 25 million customers; Sh160 billion in assets; and so on and so forth. Big companies transact big amounts of money: Safaricom made sales amounting to over Sh195 billion last year.

Let us divide all the relevant numbers by one million. The question now boils down to this: is it fair for a service provider with 25 customers to make sales of Sh195,000 and generate a profit of Sh56,000 – in one year?

Suddenly, the picture changes and it starts to look like Safaricom isn’t making enough! But if you still think it is making more, just buy the shares and join the party – they are going for Sh17 each at the stock market. Alternatively, if you think it is a greedy exploiter, just move to another provider – it’s a free country, you know.