BPM Analytics

The Conundrum of Discounts

Discounts are to retail, as throttle is to engine – a catalyst to speed up sales. Offering discounts is indeed a proven strategy to keep the sales traffic graph running high. It’s not hard to agree with it considering the hugely profitable discount festive seasons of e-commerce players we see every year.

Not just in retail, discounts are a hit with corporate employees and the military as well. They all serve a purpose to drive long-term sales, loyalty, and profits. Used rightly, it can significantly influence frequent purchases, new product trials, and increase order sizes.

Fraud Possibilities in Discounts

Speaking about discounts, the most usual ones are bespoke discounts that are decided upon by the retailer’s Headquarters (HQ). Additionally, there are two more types of discounts that are prevalent - employee discounts (limited for use by the employees of a business), and manual discounts or price overrides (usually carried out by a cashier for price rectification or to provide an additional discount for certain customers.) In many instances, these options are abused to make monetary gains unscrupulously. Especially during the pandemic, discounts have been used extensively by retailers to pull in more customers.

Amongst all the kinds of discounts, we would like to precisely elaborate on discount over discount, a lesser debated form of discount abuse than the bespoke discount we just mentioned. Discount over discount implies additional discounting over existing seasonal offers or multiple discounts clubbed together. For example, a cashier manipulating a legit invoice amount from a customer’s purchase by discreetly applying their employee discount on it, while pocketing the difference for personal use, is a discount over discount fraud.

This combination of discounts without authorization can prove to be detrimental.  It is not at all uncommon for employees to abuse this benefit for themselves or friends and family.

How to minimize Discount Fraud?

The frauds associated with discounts have been around for a while, and yet the majority of retailers strategize discounts annually. While plugging the loopholes with immediate effect may be a tough challenge, safeguards do exist for retailers in the man-machine ecosystem to prevent erosion of profits. A combination of profit protection managers, systems embedded with video analytics and artificial intelligence may just prove to be a game-changer in mitigating the risks of discount frauds.

Employee discounts, for instance, are almost always linked to employee IDs and are sometimes restricted to a geographical location and retail outlet. Deploying monitoring safeguards with limitations and conditions on the amount of discount one can avail, can potentially check a violation. A few steps that can be implemented are:

• Any personnel with extensively above-average discount usage are to be flagged and subsequently needs to be monitored by PPM.
• Employee ID to avail employee discount should be restricted only to a specific store in most cases
• Any premium product should be barred from purchase through Employee Discount
• Bulk Sales in a single Transaction again with Employee Discount should not be allowed
• Any Employee ID associated with a defunct employee should be immediately removed from the system

Furthermore, any sort of standard discount or price overrides is mostly deployed from the backend. Prescriptive analytics can come into play in this scenario. Prescriptive analytics such as IBM Decision Optimization enables accurate decision-making by building and deploying optimization models.  It can enable determining average performance benchmarks for certain KPIs e.g. markdowns/price override processed per hour.

Lastly, policies need to be placed to train, incentivize & also to legally bind employees. A proper policy can go a long way in restricting employees from doing any sort of fraudulent activities.
A collective inclusion of the above steps along with the Profit Protection Manager’s involvement can prove to be successful to ferret out employees skimming through abuse of discount option. The design of any AI solution to restrict discount abuses won’t be full-proof at one go, iterations will be involved, and thus it will be a time and resource-consuming process.

Such an implementation could imply significant investment, which can be daunting at a time when the pandemic has eliminated a chunk of profits for retailers in a matter of few months. Businesses, however, are going digital full sprung. With the ever-expanding digital world, fraud ought to grow manifold. Now, the decision-makers would need to mind this looming threat and implementing new technologies to narrow down these loopholes should be one of the key initiatives without delay. The idea is to grow, but with safeguards.