In researching my premise for this article—that discounts don’t create loyalty to the company–I was reminded that the concept of Black Friday is that it’s the day when retailers move from the red to the black.
Think about that!
First, it’s about large retailers, especially department stores and toy stores.
Second, can you imagine running your company in the red—no profit!—for 11 months?
The sad secret of Black Friday is that if your company isn’t in the black long before the fourth Thursday in November, it’s not likely to end the year there.
When you’re in a competitive market where margins are already slim, discounts hurt profit even more.
The other myth is that deals and discounts create loyalty to your company or get people to buy more, even those items that aren’t on sale.
This doesn’t happen. Discounts create loyalty to discounts and deals.
Impact on Future Revenue
Another key aspect of discounting today is how it hurts you tomorrow—and next month, next year and so on.
When you discount your offerings today you are telling—practically YELLING at—your buyers that your ‘regular’ price is fake. You put competition above all else, and buyers get that.
So they turn it against you. How would like to hear a client or customer of yours say “Hey, Steve, last month this product or service was reduced by 50%. Why can’t I get it for that price now?” What’s your answer?
You’ve lost the value or outcome-based rationale for your price or fee since you were able to reduce the price just a few weeks ago while not reducing the value or outcome.
You will have a hard time ever getting the ‘regular’ price again. Buyers will wait until your next sale or they’ll go elsewhere.
There is a powerful alternative. What is it? It’s value.
I debated value with an owner recently. He said he wasn’t losing anything by discounting his workshops and training, because what he sells is based on intellectual property—the brilliance that resides in his head. “So what if we discount by 50% to get more buyers?” he challenged me. I replied “What did it take for you to arrive at this place and time when you can offer these IP-based services? You’ve spent years building your knowledge, expertise and skills. They are far more valuable than the raw materials of most products.”
After a pause for reflection, he began to add up his investments in himself that allow him now to bring his offerings to market. And he enumerated the outcomes for his clients compared to companies that don’t buy his training. The numbers were impressive. He promised himself he would not discount again.
What is Value?
Value is the outcome or benefit to the buyer of their purchase. Value can be measured or calculated in many ways. Among the top value outcomes are:
Increases in key factors that are important to the buyer: revenue, profit, customer satisfaction, productivity, ease of use, pleasure, convenience, access to limited resources, status, sales cycle speed, profit.
Decreases in key factors such as: costs, time, materials, systems costs or delays, frustration, security breaches, fraud, bad news, employee turnover.
I wrote my book Tinker in part to help owners beef up their revenue by developing their creative ideas into powerhouses of value. I do not include any tips on how to decrease prices or fees and make less money!
The True Growth Checklist on pages 8-9 show smart business owners 13 simple, inexpensive and eminently doable ways to create true growth. For example, your company can improve and innovate current offerings to increase value.
The next time you’re tempted to offer a discount, a deal or a sale, instead ask yourself “How can we improve and innovate this product or service? What is the current value to a buyer, and how can we increase that value and therefore the price we charge?”
You’ll need conviction about the increased value and a marketing effort that reflects that conviction. You will find in no time that this approach is far more effective at achieving two goals at once: more revenue and more customer loyalty.
Turn Away from Temptation
When you’re tempted to offer a deal or a discount because it’s “the season” or you think it will generate some immediate cash, do your company a big favor and pause. Book a call with me for a Select Solution Session during which we’ll address the reason you’re tempted and figure out what to do instead. Whenever you’re ready, I am ready. 703-790-1424.