No matter what you sell, whether you’re a B2B or B2C (or combination) business, or how big your budgets are, everyone is concerned with increasing revenue. When you see a slump in sales, or you want to attract new customers, the first thing many people think about is offering a discount. It could be buy one get one free, half price or 10% off. You might even go for a special promotion, such as Build A Bear’s “Pay Your Age” day (which has generated mixed results in the past). We’re all quick to get the shears on our pricing structure in the hopes of generating increased sales.
Now, don’t get me wrong. It works. Or, at least it can do. Offer a serious discount, you’re likely to get more interest and new people through your door. It’s why the likes of Groupon does so well, people are always looking for a bargain. Price cuts can also encourage people to spend their pennies with a new business for the first time, preparing to take a gamble on the outcome thanks to the heavily discounted cost. There’s reduced perceived risk from the consumer’s perspective.
However, is discounting really a good idea as part of your ongoing marketing strategy? There are definitely some problems with this approach.
#1 – You demonstrate lack of confidence
When your product costs X, and you tell a prospective client or customer you’re prepared to sell it for Y, what are you showing them? You’re demonstrating you don’t have any confidence in the original price. You’re showing them that it was never really worth X in the first place.
That has an impact on the perceived value of what it is you’re offering. You can sell all the features, all the benefits, all the mod-cons that come with your product/service, but as soon as you start talking about price, that is the only thing your customer will focus on. All the good stuff will be forgotten, and the price point becomes the focus.
#2 – You’re setting yourself up for future problems
Once you offer a discount, there’s no going back. Whether it’s existing customers that get the discount, new ones only, or it’s open to everyone, people are going to expect you to offer something similar again in the future.
People who sign up for three months of a service at half price might decide continuing with the same service at full price later down the line isn’t worth it. All you’ve done there is sell your product at discount, and ultimately lost a customer.
Other people may only buy from you when you make the discount again, knowing that you’re prepared to slash prices when times get hard. That means you’re putting people off from buying from you at every other opportunity. Not to mention the fact that people who bought early, and didn’t get the discount, will be peeved they spent more instead of waiting.
#3 – You don’t care about customer loyalty
Discounts are there to entice people who don’t normally spend with you (unless you’re offering it solely as part of a customer reward). In that situation you’re showing you don’t care who comes to you, as long as they come and buy. There’s no opportunity to build loyalty when your sales process is based solely on price – next time they need to buy a similar product/service they will simply look around for the cheapest option. If that’s not you, they will go elsewhere.
# 4 – You’re making your sales team work harder
Unless you’re plucking figures out of thin air, your pricing structure is carefully calculated to ensure you ultimately make a profit. If you take that product/service and sell it at half price, you’re going to need to sell twice as many to keep the same level of revenue. That’s more people your sales team are going to have to convince to part with their money.
You are far better working out a sensible pricing structure that not only ensures you are able to make a profit as a business, but that your customers and clients are receiving value for money in the long run. Equally, your pricing structure should be sustainable – you don’t want to have to change it every few months.