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Why I don’t believe in discounting, and what to do about it
You start a business with a dream. With purpose. It becomes a mission.
It might be a product or a service, or an information product. You pour your heart and soul into this thing and you make it the best you can possibly make it. All of your values go into what you’re making. Aesthetic, financial, moral, and quality values, I’ll represented in the thing you’re selling.
At some point you have to decide what to charge. Maybe you just look around at other similar products, and pick a price that they’re using. Or undercut them to compete. Maybe you deeply understand your industry margins, sales channels, distribution layers, etc. and you know what everybody needs in every layer to survive, and you price your product accordingly.
However you come by a price, you believe this is the right price to sell your product.
When you start to sell, the very first objection you get, and the most frequent objection you hear, is price. Oddly, the objection never sounds like ”the price is too low.” Which is weird, because if the people who are making that objection we’re better than you at pricing your product, there should be a roughly equal number of high and low price objections, if you surveyed across all products.
When I was running my retail wine and beer store, I was approached by every advertising salesperson in town. Radio, TV, newspaper, magazines, the Yellow Pages, everything. I came from a background of selling online, so I expected to have data on every sales channel. I expected to be able to measure my return on investment for any advertising that I purchased. When I asked advertisers for how we were going to measure ROI, 90% of them didn’t know what I was talking about, and the other 10% said “that’s easy, offer a discount.”
In retail alcohol, profit margin is no higher than 30%. So a 20% discount just to measure the effectiveness of the ad eliminates two-thirds of the margin with which we are to measure the returns. For a $1,000 advert, that means to break even at 30% I need to sell $3,333. Give a 20% discount, then just to break even on the same ad I need to sell $10,000.
This is obviously a losing plan. The reason legacy media advertisers want you to offer discount, is to motivate the customer to remember and report where they heard about you. Then you believe the ad is “working” because you’re hearing “radio” or “TV” from people. To me the ad is only working if it’s making you more money than you’re spending, complete with the extra labor you pay for to handle the influx of new customers.
In the past couple of years I have been helping businesses as a coach and consultant. It breaks my heart when a client insists on discounting, and can’t afford to grow their business. The reason you can’t afford to grow it, is because you’re discounting.
One client I worked with sells an information marketing product at trade shows. The price of the product is already too low to support a sustainable business, but then he insists on discounting it because he believes that is the only way to sell at a trade show.
I know a ton of people who sell information marketing products at trade shows. Some of them do discount but I know a lot of them who don’t.
The underlying impetus of offering a discount at a trade show is to create urgency. The idea is that the customer is told they will only get this price if they order now. The idea is to push some of those people contemplating off the fence and into the buying category. This model is a high pressure sales tactic that does work on some people.
The problem is when it does work, it works for the wrong reasons and it attracts the wrong clients. The ones who always want a discount, who complain at the slightest issue and who can’t be consoled if something goes wrong, no matter how much energy you put into righting it.
It also torpedoes your margins. If you have any kind of rational pricing to your product, offering discounts to stimulate urgency wrecks your business.
One objection I hear right about this point is “hey you don’t understand my business, I have great margins and I can afford the discount.” If you think that your margins can take it, I bet you either don’t understand your costs, or your product is priced with intentional inflation to support discounting in the first place. Am I wrong? Comment or email me to tell me about it.
Here’s the bottom line. Discounting tells your customers that you don’t believe in your own brand. It tells them that they shouldn’t trust you when you say your price is your price. You’re training people NOT to buy your product 364 days a year.
If you can’t get a sale without discounting your product, the true value of your product is actually the discounted value. You should just change your price to the lowest price you’ve ever sold the product at and decide whether you still want to be in that business.
There’s a much better way to stimulate urgency then discounting. This is a way that supports legacy media tracking, and supports urgency.
Provide more value. Give a bonus.
Offering a limited-time bonus does not distract or detract from your belief in the product that you’re selling, or reduce your margins. It does create urgency, and for the customer who chooses not to buy, it positions them to more easily buy later.
Remember all of the effort you put into creating a thing you sell? Remember the blood sweat and tears it took to build to where you are now? Do you remember the mission you’re on, the purpose for which you started? Do you remember how your purpose is bigger than just this product? This product simply feeds into your purpose?
The bonus you offer should be another way to fulfill your mission, and be on your purpose.
What’s your business? Do you use discounting? Do you like it? Have you used bonuses? I’d like to hear what bonuses you have used, and what the effects of been.
Comment or email me and share your story.
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