The Devil Is in the Discount

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The Devil Is in the Discount

SALES & MARKETING ADVICE

The Devil Is in the Discount

You may have heard the phrase that “Turnover is vanity, and profit is sanity.” In the business world, discounts are often simply the equivalent of the Devil's illusion. Your profits are down, but your sales are up. You lose, but you think you’re winning.

It's very easy when there are bills to be paid and sales are down, to simply offer a discount in an attempt to attract new customers. Pricing is the ultimate conflict of interest for an entrepreneur. The customer wants to pay as little as possible and the entrepreneur wants to receive as much as possible. That's quite a conflict. Here are some of vices inherent in discounting your price and some suggestions for how to avoid temptation.

The Devils’ work

1) Unfaithful friends?

If your unique selling point is merely a discounted price, your customers will come for that but leave for someone else's. Price doesn't really give customers value in the end, there needs to be a real value in your product or service that can be reflected in the price. Price is not the same as value.

2) Nasty Habit?

Giving a discount to close the sale is a time-honoured tradition. However, it can become a nasty habit, which your customers will soon become wise to. You may then find yourself in the ridiculous situation that no matter what price you give your customers will always beat you down. A modern way of feeding this nasty habit is to constantly promote discounts on a Facebook page. Some businesses have customers camped on their Facebook page just waiting for discounted product. Why would you ever pay full price when you know you will receive a discount by just “liking” a business on Facebook?

3) Busy fool?

If you give your stuff away, you'll ship a lot of product at that price. But what about your customers who pay full price? You'll find that customers whose chief criteria for purchase is low price can be ”high maintenance”. Sometimes, the resources used to close a sale of €100 are equal to the resources required to close a €1,000 sale. If you increase sales by discounts alone, you can then end up not taking care of your best customers, because so much of your time and resources are tied in dealing with unprofitable customers.

You've heard that virtue is its own reward? Well here are some antidotes to discounts that may reward both you and your customers.

Devil’s Antidotes

1) Add Value

Be better than your competitors. Have a great product. Deliver outstanding service. This doesn't have to cost a lot of money. If you sell products to parents, you will know that people truly value their children. If you run a restaurant frequented by children for example, offer an Easter egg hunt with uniquely coloured eggs during Easter lunch, rather than discounting the price of lunch on Easter Sunday.

2) Ring fence your offers

If you are trying out a new pricing strategy, see if you can find a quiet place to experiment with it. Advertise on small website or a niche publication for example. Make it a limited offer. Test market your strategy, if it doesn't work, then you haven't done your "real" business any harm.

3) Switch Something Off

If your product has lots of bells and whistles, you can always take away some of these in order to sell at a reduced price. This is easy to do with technological items such as software or hardware.

But you can apply the “Switch something off” stategy to almost anything. If you deliver training, have your client supply and print all of the course materials. You have then “switched off” the supply of these materials and can reduce your price in return, in lieu of offering a discount.

In a restaurant, offer two courses instead of three for a fixed price. You get the picture. The important thing is that you maintain your premium price for your premium product, and you are not “training” your customers to expect something for nothing.

The devil is in the discount, so give the details some attention when you are pricing. That way, you get to make a virtue out of rewarding your customers with value and rewarding your company with profit.

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Recent comments

Shane said

20th April 2011

Don't totally agree here Helen! "Discount" is of course a dirty word, but the margins which some have been charging in the good years are no longer sustainable, and both need to be trimmed, and are capable of being trimmed. I agree with the general sentiment, and it's important for a business to not devalue their brand by offering constant money off (Miller in the supermarket beer price wars is always one I think of as devaluing by offering crazy reductions), but a limited time offer for example, or giving something to your Facebook fans can be a great way to build engagement, increase loyalty etc. As the likes of Chris Anderson and his "Long Tail" would attest to, the internet especially has changed the way we do business, and the likes of freemium models for example, (while not strictly speaking discounts)have proved highly lucrative, mainly due to the fact of a different way of thinking outside of FMCG. I do think the notion of "being better than competitors" is one which should obviously be followed by all aspiring businesses, but this can include offering special offers as enticements. If you're better than someone else, sporadically offering enticements to your customers, and they still chose to go elsewhere when a competitor offers a discount, well, more fool them, and they aren't really the customer bullseye you want to hit! I suppose, I would say all of that though, given the line of work I'm in, and having said all of that, there's a HUGE difference between discounting, and offering brilliant value.

Philippa Morck said

20th April 2011

A very good article which I agree with entirely. Your customers will get used to you discounting the price and will come to expect it and then feel you are being unfair for charging the correct rate. Very well written.

Helen Cousins said

21st April 2011

Shane, If a business has been overcharging in the past, then they need to re-evaluate their entire pricing strategy for sure. This is more a case of “getting real” than discounting. I didn’t intend to suggest that you should never give something away on Facebook, but to be careful how and when you do it. For example, if your Facebook page posts are only ever “deals” which significantly undercut your website prices, well inevitably your customers will wait to buy at discounted price and never pay full price. I do think it’s important to offer rewards to existing customers, to reward loyalty really. This doesn’t have to be a price reduction – as you say there is a huge difference between offering value and discounting. The post is really aimed at those who use discounting as a matter of routine, without thinking of the consequence for profit, and the suggested antidotes provide some alternative ways of offering value without sacrificing margin. Thanks for taking the time to comment and by do doing you have added to the post. A spot of disagreement is healthy :) Philippa, Thank you very much, It's good to know that you found the post of value. Helen