Pricing Discounts and Why You Should Never Use ThemPosted: June 15, 2012
Sales. Pricing discounts. One-time offers.
Oh, these are clever ways to increase your short-term sales. Businesses have been offering discounts since a man could trade two fish for the price of one when he really needed to seal the deal. However, these pricing practices can tend to hurt more than help in today’s currency-based economy. Discounts may increase your market share for a little while, but it eventually changes customers’ expectations of your brand and you’re stuck with the discounted premium forever…well, at least longer than desired.
Caveat: I realize that pricing strategy is more complicated than I’m letting on in the 500 words or so, and sometimes it’s necessary to use price pulses, etc. However, I’m addressing the common problem of using “sales” as a reactive, first response decision that many businesses make.
Problem: the doom loop
Just like a plane spiraling in an irreversible dive towards the ground, brands get sucked into what’s commonly called “the doom loop.” Here’s how it happens (and I’m sure you’ve seen this before):
- Your sales slow down and your marketing results are lacking,
- So you decide to lower your prices as an incentive (you’re following the classic ideas of the price elasticity of demand).
- To maintain profits with the price reductions and tighter margins, you decrease your services and marketing expenses.
- Good news! Your short-term sales improved.
- But wait, your competition responds in-kind.
- Customer price expectations shift (think fast-food chains when the “value menu” was introduced).
- Your customer experience deteriorates (because you decreased your services and marketing expenses),
- Which leads you back to soft results and dampened sales.
And just like that, you’re back where you started, only now you have less wiggle room.
My encouragement to you is not to succumb to price discounting. Don’t throw a sale. It’s easy. It’s common. And it’s death incarnate for your business.
So what is the right step to take?
Solution: zig, don’t zag
There’s another way out of the mess, and you can be the one that changes the game. Instead of moving with the competition when discounting ensues, add value. Easy to say, I know, and hard to do. I don’t mean to belittle anyone’s situation or downplay the difficulty of short-term and long-term cash-flow battles. But if you want to position yourself away from competition, provide benefits (even if the benefits are only based on perception) and customers will respond in-kind.
The Plan: add benefits
Let’s revisit our fisherman friend from before. Instead of offering a 50% discount, he could have added benefit to his trade by:
- Filleting a fish for his customer
- Cooking the fish
- Flavoring the fish
- Making jewelry from the fish bones
- …You get the picture (the list goes on)
What does that look like in your business? It could take the shape of free samples. Or maybe it’s offering the best customer rewards program, referral program, and/or guarantee in the industry.
The trick is finding the benefits that customers in your industry are craving and offering that to them.
So I’ll leave you with this:
Pricing discounts are the easy way out. Pump-up those creative juices and put in some hard work. You’ll find a way to make your brand attractive while your competition is helplessly spiraling toward oblivion.
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