Deals, discounts, coupons, and offers – more often than not, most merchants will be faced with the decision of whether to use these tactics in their pricing strategy. In some situations, providing discounts for certain products or services at certain times or under particular circumstances can prove to be a powerful weapon in your arsenal for conversion. However, used incorrectly, that weapon could backfire, resulting in significant damage for your brand, your perceived value, and your profits.
Most professionals advise companies to stay away from discounts as much as possible – because they devalue what you’re offering in the eyes of your consumer. What’s more, discounts and deals can sometimes be a cop out choice – used by businesses that would rather lower the price than put the necessary effort into enhancing their perceived value. If you want to use discounts, you need to think about your reasons behind such an action, and plan your moves as strategically as possible.
Using Discounts without Demolishing Trust
First of all, applying discounts without compromising your pricing strategy means understanding how to time them. For instance, springing discounts on your customer at the point of sale, “fly-fish closing” can damage your company-customer relationship. It shows that you don’t believe in the value of your product – as you’re willing to make discounts to push a customer towards an instant sale, and that you’re more interested in getting their money than offering a solution worth their consideration. Maintaining consumer trust means that when you do decide to offer a discount, you should do so prior to the start of the sales process – by either advertising the event ahead of time, or being up-front about an existing offer at the beginning of your conversation.
Don’t Use Discounts as an “Easy” Option
Before you start throwing out discounts, you’ll need to consider your reasons for using that particular tactic. Are you offering discounts because other companies within your industry are doing it? Or are you offering deals because your clients demand lower prices? Are you concerned that you won’t be able to retain customers based on your current prices? All of these reasons undervalue your skills, effort, and worth as a company. Determining your company’s worth is a complicated task, which often requires a lot more than looking at balance sheets. However, once you’ve come up with a pricing strategy, you should be prepared to stick to that perceived value, and put in the extra effort if your customers perceptions don’t match your own.
Often, if a customer objects to your price- but has the means to pay for it, then they’re not objecting to the price at all. In fact, the thing that most customers are concerned about when asking for a lower price, is that the solution you’re offering doesn’t meet the value you’ve ascribed to it. In this situation, discounts won’t work, as you can either lower the prices for good, or work harder in convincing your target audience of your value. You may find that the problem stems from marketing to the wrong audience in the first place.
Discounts Need Scarcity to be Effective
If your customers know they can rely on you to drop your prices any time they snap their fingers, then you’re not going to run a successful business. Introducing general discount plans can mean that bouncing back to your original pricing is difficult, as your customers will ascribe the discount value to your product, rather than its original value. This means at full price, customers won’t feel as though you’re offering is worth their money. In other words, once you’ve discounted a product, you may not be able to convince your audience to buy that product at full price. To avoid this issue, don’t make discounts general – particularly to new customers. Make your discounts seem exclusive, scarce, and special – so people don’t take the savings for granted.
Marketing using scarcity can be incredibly effective. The scarcity you create can be in the form of:
- Time – how long a discount is available
- Quantity – how many people can access the discount
- Status – A customer’s status as a long-term consumer, or loyal patron
Failing to explain your discount can make it look as though you’re discounting a product or service for no reason. What’s more, scarcity encourages people to move fast and take action – as with no scarcity, there’s no sense of urgency prompting them to purchase.
Consider Discounts Carefully
Only ever offer discounts when you understand the economics of your business: customer acquisition costs and customer lifetime value. If you can prompt bigger and better sales by encouraging your customer to purchase a less popular item through tie-ins because they gain a discount when bought with another, more in-demand product, then you’re using discounts to your benefit. However, you should never use discounts as a desperate attempt to gain or retain customers when sale numbers are dropping. The more you discount your products without careful planning and consideration, the less value you ascribe to your business as a whole.