In a tough economy, it is tempting to discount to secure new business.

 

Demanding customers will go from door to door, just haggling for the best deal. Before you start down that slippery path, consider the options. 

Especially if you are positioning your organisation as a premium brand. Short-term gains can threaten long-term success.

Here are three classic pitfalls in a discounting pricing strategy:

 

Perceptions

If you want to position your brand upmarket, then every time you drop your price to make a sale, you are denting the image of that brand.

“Your price is part of your value communication, and if you discount, then over time your customers will begin to perceive the value of your product/service as less than they should.” (pricingsolutions.com) 

Prejudice 

In most cases, when you are discounting the price of a product, someone else is paying for it, and someone else is being disadvantaged. Ask yourself: Is this a fair way to price my product? Customers talk to each other. You could lose a client because you granted a new client a discount to secure the deal.

“By having uncontrolled discounting you could be exposing your company to unnecessary revenue and reputation risk.” (pricingsolutions.com)  

Precedent

Once it is known that you are negotiable on your pricing, you can expect a flood of requests, or even demands.

“By offering discounts, you’ve set the precedent that your prices aren’t set in stone, leading them to continually try to reduce the price for your products in future negotiations.” (pricingsolutions.com)

 

This does not mean that discounting should never be done! Discounting is a pricing tool, and when used well, can be successful.

The best way to think of it is this:

Find a way to reward your customers for something more,

rather than charging them less for the same thing.

 

Examples are:

Volume discounts

Sibling discounts (the more brothers and sisters who are in the same school, the greater the discount) thus you are encouraging extra business.

Loyalty discounts

Reward the customers who have been doing business with you for many years, thus you are encouraging retention of clients

Other discounts in line with your strategy

Ideally, your pricing strategy is linked to your overall marketing strategy and positioning:

  • How could discounting actually build your brand instead of compromising your brand?
  • How could selling to fewer in a more targeted, segmented approach lead to less desperate measures that will not be sustainable?

 

A clear pricing policy with transparency on discounting helps to build trust.

 

Base this on your overall strategy, and keep your brand value and existing loyal customers central to your decision-making.

I'm Keryn House

I enjoy creating marketing anecdotes and visuals related to my horse as there is a lot to be learned from animals, and this provides a unique context to my writing. My horse Slick (aka Sports Express) has been with me for many years and is a source of inspiration and relaxation for my strategic mind. He lives on a friend’s farm in KZN and I see him twice a week.

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