(Cont'd) Thou Shalt Not... Misprice Thy Wares
Discounts: The Marketer's Narcotic.
Previous: Thou Shalt Not… Misprice Thy Wares
The performance discount is a brand narcotic.
And the marketer’s dependence on it grows with each application. Want to stimulate Q4 sales? Discount. Our conversion rates aren’t looking good. How about a discount. Our office is on fire! … Okay but can the landlord give us a discount?
Discounting comes in over 31 flavors but all serve the same purpose: artificial sales stimulation. Discounting earns us sales we otherwise would never have seen. By discounting, we attract and convert new customers. However, discounts attract the wrong customers. The buyers lured in by a discount are not our target audience. These customers had no intention to pay full price and will rely on subsequent and steeper discounts to continue their patronage.
Despite that fact, which deep down we all know to be true, we discount because we work in cultures that emphasize short-term gains. When we grow unsatisfied with our product’s performance, we discount. Instead of investigating the price point, the value proposition, the communication, the product, and the buyer’s themselves for areas of improvement, we turn to doping.
But temporarily discounting our prices does not improve our functional performance. Much like swimming circles around middle-schoolers won’t snag us a gold at the Olympics, discounting our products does nothing to improve their relative value among comparable products, in fact, it has the opposite effect.
I believe our products and our brands take three hits when we discount.
We fail to realize tangible revenue
Presuming the original price was well set, we lose out on revenue that we once deemed necessary to secure the product financially at its present level of quality.
We diminish the ‘quality’ of our product
Price is married to perception; a sudden drop in price can irreparably diminish the quality perceived by the customer. And too steep a discount can place our products in the wrong category.
For example, a heavy discount at Ruth’s Chris Steakhouse, arguably one of the US’ best steakhouses, would put their steaks in direct competition with that of Chili’s. Terrible for Ruth’s, great for Chili’s.
and We break customer trust
Customers who bought at previous price-points will employ more scrutiny in the future when purchasing from our brand, if they ever purchase again.
They suffer most because their perception of the brand was based on a higher standard. Imagine you drove a 720 horsepower Mercedes-AMG GT Coupe off the lot and Mercedes announced a 50% price cut the next day on all models. After you’ve calmed down, you’re still fuming at Mercedes, you resent the discount buyers, and you no longer own the status symbol you showed off the day before—you now own a ‘budget’ sportscar.
That’s an extreme example, but even minor discounts impact our brand and our loyal customers over time by slowly chipping away at our image.
Common Discounts & Why You Should Avoid Them
One prolific form of discount today is the faux-personal discount code.
As soon as I see a coupon code input box in a checkout flow, I know exactly what to do: go find one online. This technical wizardry presents marketers with what appears to be a sleek performance tool, but discount codes are merely the Internet’s coupons. These codes have precisely the same impact as other discounts noted earlier: they devalue the brand by teaching the consumer that our products are overpriced.
By purchasing at ‘full price,’ consumers are necessarily fools and they’d be stupid not to wait until the appropriate coupon code reveals itself before making a purchase. In fact, by dangling a discount up front in exchange for a newsletter sign-up or some other foolishness, we train our customer to wait for discounts. This practice ensures the customer’s relationship with us relies on drug dealing—they won’t buy until they see the best deal, rather than the best product.
🔥 Hot Take: Discount Codes
This practice is unethical because it preys on base human psychology. We can only fool our customers into buying from us for so long before they either kick the habit or find a brand dealing better drugs.
Another discount technique that appears ethical on its surface yet erodes our relationship with the customer is the bulk-discount.
For some products, economies of scale necessarily impact cost of goods sold—the more one produces, the lower the cost per unit, and buyers often buy in bulk. Producers incentivized these bulk purchases with discounts to achieve precisely these economies of scale, which mutually benefit both parties.
However, this practice has since spilled over into consumer goods and transactions where scale plays limited role. These discounts come in the form of incentives in exchange for larger orders: free shipping, 10% off, among others. The problem lies here: the buyer does not perceive a cost-savings to the business, there’s no deal happening.
If I order 3-pairs of shoes it’s somehow cheaper to ship than if I had ordered one? Not all customers have PhDs in math, but I bet most can see there’s no obvious reason to offer bulk-buying benefits to consumers for products sitting on a warehouse shelf waiting to be shipped. This type of bulk-discount is impersonal and geared toward short-term performance. And if our customers typically place large orders due to the nature of our products, then they live with the knowledge that our products are overpriced. The result is the same: we’ve simply moved the discount to a new location.
By relying on bulk-discount techniques, we appear to provide a personal discount using impersonal techniques. For example, if you buy this much, you’ll save this much squawks the bulk-discounter. But an algorithmic discount formula turns customer appreciation into a numbers game, and risks harming the rapport built with the individual customer.
“But Stanley, I really want to reward customers who commit to me.” And you should, but there’s a way to do that without harming your brand.
The Right Way to Discount
Are there ethical ways to discount? Yes.
Permanent discounts on previous or refurbished models are not only just, but highly encouraged for obvious reasons. An older model is typically of inferior quality in some way compared to the newer. If you refuse to discount an older model, customers presume your latest offering provides few benefits over the previous. In general, a new model should offer something novel to the consumer, any case to the contrary points to a flaw in your operation.
And refurbished or pre-owned products are nearly always inferior in the customer’s mind when compared to brand new, even if the two remain identical in form and function. A pre-owned discount honors this mutual understanding between company and customer.
One company that does this exceptionally well: Apple. When do iPhones get cheaper? When new ones come out. How do you get your hands on a cheaper MacBook? Get it refurbished from Apple. Companies that do it wrong: almost everyone else. And the company with the highest market capitalization on the planet? Apple at over $2-trillion.
Certainly their pricing is not the lone factor which contributes to Apple’s success, but would Apple hold their place in consumer’s minds (and wallets) if they littered their stores with ‘25% off’ tags and Labor Day Blowout Sales? Hell. No.
Here’s another discount in the pro column: the personal discount. A personal discount is a favor among peers. For example, offering a discount to a long-time customer is an excellent way to show appreciation for their continued patronage. But even personal discounts can put your brand at risk, which is why there’s a superior substitute: gifting.
A personal gift or token of appreciation takes the topic of price off the table and off the customer’s mind. A gift, especially one without a price tag attached, serves to properly thank the customer without forcing them to perform a cost-savings-benefit analysis.
Gifts also require creativity, deliver joy in excess of a discount, and can mitigate the risk to your brand’s reputation and your bottom-line. Gifts don’t have to be expensive, but they have to be personal.
At one point, SoulCycle empowered its trainers to spend up to $30 per month per guest to surprise clients with gifts as a show of appreciation—that practice established an ethos of relationship-building at SoulCycle which propelled the company into the mainstream.
🔑 Key Takeaways
When you discount, you hurt future revenues. You and your customers grow dependent on discounting, and your product team loses motivation to produce high-quality goods knowing full-well that the marketing team will discount them in short-order.
Discount codes are coupons, just imagine your customer clipping them from a digital magazine with a pair of safety scissors… yeah, so don’t
Discounting hurts your existing customers who believed in a superior version of your brand
Personal gifts, rather than discounts, show true appreciation for your customer and promote repeat business without bringing to question the cost-benefit analysis your products provide