The big question: should you give discounts or not? Should you woo customers with a barrage of offers that chip away at your margins?
The debate has been on, forever.
Ever since the Industrial revolution and the influx of countless products over the years, almost every company in business offered some sort of a discount or the other. For some companies, that’s the only way business is done. A few businesses do mull over the actual ramifications of promotional strategies such as offering discounts.
Discounts are an obvious promotional strategy, but the after affects of such strategies unfortunately aren’t so obvious.
Patrick Campbell of Price Intelligently wrote a post on how discounts are killing your pricing strategy and how giving away 10% or whatever percentage away in discounts has the potential to nibble away at your profit margins. Also, by offering discounts, you condition your customers to de-value your product itself. Once you offer a discount, it forms the gateway for a pattern that customers can quickly get used to.
Now, you do have ways to use discounting as a tactic to accelerate sales. You just have to do it right.
Here are a few ways:
Here’s the biggest secret in commerce: put up a price for your service or product and there’s bound to be a set of customers rooting for it. In fact, the higher you price it, the more exclusive the brand becomes.
So, why do companies rush and dump discounts on the table, you ask? Corporate world has no time to experiment with perceived value of products. Branding takes time. Expensive products sell slower. Plus, there’s the fixation customers have on saving money and Doc Searls of Fast Company points out. Everyone loves a good deal and commerce literally drives this maxim home.
Companies offer discounts to accelerate demand, to give another reason for customers to consider the product in the face of competition, and to bolster sales during weak sales periods. Give discounts but don’t let it get into a pattern. Use special occasions, festivals, and other such instances to pull in the discounting strategy.
Discounting as a promotional strategy does work. It helps pump up sales volumes and aids in the acquisition of customers. Discounting help recoup traffic or invoke demand for products. That’s the short-term result anyway.
You could build a brand around low pricing much like AirAsia – South East Asia’s leading Low-cost carrier does. You could pretty much be the Walmart, TravelLodge, or the Premier Inn.
The fact remains the same: People are clueless about what a product is worth. It’s up to the company to build products, price them right, and train customers by demonstrating value. Timberland won’t make $49 shoes and so is the same with New Balance, Reebok, and Nike.
As Arie Shpanya pointed out on The Econsultancy Blog, nothing is expensive or cheap unless you compare it with something else.
Instead of making discounts a habit, go for adaptive pricing as Rafi Mohammed of HBR explains, or price low. Maybe you want to price high. Do whatever you think gets your company a place to hold it’s own.
Build a brand on low price or on exorbitant prices. All that matters is how you justify the cost. While low cost is self-explanatory, it’s the high-cost products that need justification.
Justifying, explaining, training is just plenty of work. However, this work is easier to live with than losing money everyday off the shopping aisles. Building a high-value brand is easier than cutting costs and giving discounts.
What do you think of discounts as a pricing strategy? Let us know.