The advent of the internet has given rise to a new avenue of sales for retail companies. The pervasive nature of a retail web site creates new opportunities as well as dangers for a business. Today, I want to discuss a concept I coined called collective discount intelligence (CDI). CDI refers to the discount power derived from the collective intelligence of the internet. Sites such as FatWallet.com and SlickDeals.net give rise to collective information sharing of discount information for various retail deals. This by itself is a good thing, as discounts are offered by companies with the intent to spur further sales.

Where this process goes wrong is when a hole is found in the system and a discount is used in a manner with unforeseen consequences. The most immediate affect of CDI is a loss of expected revenue. A recent example of this can be seen where a company was offering $10 discounts for $50 purchases, but a glitch in the system applied the discount to each item in the purchase regardless of price, resulting in thousands of dollars of lost revenue . Another example involved $250 gift cards given to sign up for a yearly service that totaled $180. Customers signed up for 3 or more accounts and cancelled the contracts to pocket the $70 difference to be applied to the products of their choice.

In the past, these kind of activities might have been limited in nature. However, with the rise of CDI, any kind of loophole will not only be discovered, but will be quickly disseminated to a wider and wider audience. Many times, the discount abuses will start out being unintentional, as the individual customer may view the situation as an incredible bargain. As the discount information gets passed on to a central information hub, the discount is further analyzed by savvy customers who will manipulate the discount for maximum yield this is usually the point at which CDI becomes abusive in nature. Retailers will often absorb the income loss, rather than risk alienating their customers.

Making matters worse, abuses like these can happen during the weekend or at night when detection and fixes can be very difficult to accomplish due to resource constraints. The 24 hour presence of a website also makes the monitoring of these types of abuses difficult and cost prohibitive. Another consequence of CDI is drops in sales due to competitor discounts. When a retail competitor has a discount on a commonly carried product, CDI will hurt the sales for any companies not matching the discounted price. The price matching policy of various retailers further hurts profit margins on any discounted products, as CDI will force price matching whenever possible. As customers start purchasing more and more commodity items on the web, the consequence of CDI will need to be better anticipated by businesses.

As web businesses grow, the area of CDI will become more valuable. Dealing with CDI in a proactive manner will result in increased revenue and better customer satisfaction.