The Double-Edged Sword of Discounting

The biggest cost facing many businesses today is discounting. You won’t find it anywhere on your income statement, but know that it is a real cost that can be real deadly for your business. (big and small alike)

The recession caused many marketers and entrepreneurs to panic. As consumers tightened their spending belts, most brands turned to heavy discounting and coupons to prop up sales. What happened? The cash registers rang. Discounts and coupons work…but only in the short term.

Laura Ries hit the nail on the head when she compared discounting to cocaine:

The first time you do it, it is the best feeling in the world. But over time it takes more and more of it to achieve that same feeling. And then you need it just to function. You are a cocaine addict. From the mug shots of Lindsay Lohan and others we know how personally destructive cocaine is, yet we fail to realize the similar brand-destroying danger of coupons.

Discounting can turn into a very serious and expensive addiction.

It creates disloyal customers

Discounting puts your customer’s focus on price and makes your brand a commodity. All the stuff you’ve done to differentiate your brand falls to the wayside. Price shoppers to care about differentiation, they care about price…and believe me, they will leave as soon as your competitor offers a better deal.

Discounting tells the customer what the product is “really” worth

Once you discount, you are going to have a hell of a time convincing customers to pay full price again; it is an admission that you were charging too much to start with. In 2009, I had the opportunity to discuss discounting in the restaurant industry with an executive from Red Lobster. He explained to me how the Red Lobster brand has really focused on adding value in the recession, rather than price cuts that competitors such as Outback Steakhouse were giving customers.

Discounting lowers the perceived value of your product, plain and simple. Customers begin to perceive the actual worth of a $20 steak, marked down to $10, as worth only $10. Once you perceive it as being worth only $10 are you ever going to pay $20? I didn’t think so.

Instead of discounting, I urge you to focus on value.

Seek to better understand what really makes your product different and communicate the impact it has on your customer’s lives. Constantly seek new ways to add value and justify your higher prices (shorter checkout lines, training classes, no questions asked return policy)

Do this and you will be able to charge what you’re really worth.