Every business has a price for their goods and services that they’d like to charge. Based on either perceived value or actual costs or somewhere in the middle there is a “normal” price for your goods or services. But each person has a perceived value for everything based on their own life experiences. When demand plus that perceived value fall into place, you have a happy customer. Simple.
You may also have demand plus no alternatives (think about the gas station in the desert) and you’ll have a customer all right, but they’re not going to be happy. All this blathering about pricing is to make a point: your discount may not matter to people or even be perceived. And discounting can actually hurt your business rather than helping it.
A successful business is relatively simple equation - a product or service that customers want, a price that customers think is reasonable and enough marketing to let those customers know that you’re there. When one leg of this stool is out of whack, you’ve not sitting right. Of course customer experience, location and other things are a factor as well.
One of the things I’ve seen a lot of people do is observe a slowdown in sales so they lower their prices. But if your price isn’t what people object to, then this won’t bring in many more customers plus you’ll make less money on the customers you were going to get in the first place. Price was not the issue but customers will always tell you that it is because we’re all cheapskates.
When I had the events business or the resort, people would often want a big discount on what I was offering and promised to tell “all their friends” about what we were doing. Sure enough they would tell all their friends - and those friends would want the same discount. The lower price actually hurt us financially so marketing with a discount was a mistake.
Customers don’t always recognize that any discount they might receive is because of special circumstances, such as off-season pricing, bulk discounts and the like. On whatever form of receipt they get from you, it’s a good idea to explain the discount they’re getting, if any.
But sometimes it’s better to offer no discount, even to charities, and make a donation instead. For example, we would donate our house-brand coffee and a ceramic coffee mug to some charities instead of giving away rooms at the resort. In the events business, we would offer gift certificates to local restaurants instead of donating our services.
There’s a band we hire every year for a community event and we pay full price for this band. But, the band then donates money for a big end-of-event raffle so the band’s value is maintained but the charity makes a huge amount of money on raffle tickets, resulting in a net gain for the charity when all is said and done.
You could clarify this as a discount; but the memory of writing the check for the band is what people will talk about in a referral. And that’s what we tell others that the price is. This band is worth the price we pay. Yet the seed money in the raffle is a huge component of the event’s fund raising so the band is virtually guaranteed to return every year. Well, they’re also really good.
Unfortunately if marketing by discounting is how you’re approaching things, there could always be a competitor who comes along with a better price. Think about WalMart and most downtown regions - WalMart’s branding themselves as the low price leader and squeezing their suppliers is what has hurt so many downtowns across America. If those downtowns simply got together and really, really worked on their service and presentation they might not be in so much trouble.
In the absence of great service or an outstanding experience the big differentiator was a discount and Walmart has a handle on that so they won.
And competing on the basis of the discount you offer has been trouble for a number of companies, most notably JCPenny. My first job was at JCPenny and their training really emphasized customer service and the history of the company. But shoppers flocked to them because they were known for offering coupons and discounts.
Along came Ron Johnson, formerly of Apple, and changed how the company presented itself resulting in huge losses (here's what Forbes reported on this). But, unlike WalMart, they weren’t a company that always offered a discount, but relied on coupons so you knew what the full price was and what your discount would be.
Once again I like to bring up Disneyland who recently raised the prices on their parks. Why? They were too full! Once again Disneyland knows that if they continue to improve the value to the customer and the experience, then there will be enough demand that they won’t have to offer a discount.
So if sales are slow make sure all three legs of your stool are strong. But discounting should be your last resort to get your seat in balance.