If there is one legacy that this recession will have it is this. Everyone expects a discount. With so much news about a struggling economy, canny buyers with money feel that they have been put in the negotiating position when it comes to purchasing goods and services. They want to feel that they have the power when it comes to a transaction.
And what customers’ want, is exactly what marketing likes to provide. What used to be an occasional promotional strategy has turned into a permanent sales tool. To quench the psychological need for buyers to feel that they are getting a deal, the standard price has become an illusion. There are more and more companies where you would feel an idiot for paying the actual price – in fact in many cases it would be impossible to pay the standard price as it is never available without one discount or another.
For many smaller businesses this presents a problem. Regardless of what your standard price is, more and more customers will start to consider this to be the starting point for the negotiation. Or worse, will see that you are not running a discount and go with a company that is – even if, ultimately, the competing price is higher.
So to discount, or not to discount?
One thing is sure. If your customers are starting to expect or request discounts then you need to address that concern, or you will lose business. But that doesn’t mean you need to start instantly running offers or providing money off.
UK retailer John Lewis are the perfect example of how to address concerns on price without slashing a redline through the ticket price. Their ‘never knowingly undersold’ policy gives customers confidence that the all prices are the best available and allows John Lewis to concentrate on a quality based marketing strategy. Price match promises are another way to give customers confidence that you care about value without slashing prices across the board.
Yet in competitive markets where everyone around you is running consistent sales and discounts, it may be unavoidable to start using discounts as part of your promotional strategy.
How to discount?
If you think that discounting means just reducing the ticket price and making less money then think again. Running discounts, sales and offers should be a promotional strategy designed to increase sales and profits, not reduce them.
It is therefore very important that discounting is a well planned and strategic activity, and not just a case of knocking some money off just because someone has asked for it. By having a strict set of rules concerning which discounts apply to what you can keep tight control of your margins, manipulate what is purchased and when, and also start to use price as a promotional tool.
Regardless of whether you are selling a product or service, whether you are online or offline, business-to-customer or business-to-business, customers rarely expect something for nothing and will be flexible in their purchase if it means securing the best possible price.
Here are a few ideas on how you can quench your customers’ insatiable need for a bargain, while still making sure you have a profitable business by the end of the year.
New Customer Discounts
Price is more often an issue for new customers than existing ones. Existing customers have already sampled your product or services and know that it is good, so are less likely to go elsewhere based on price alone. New customers however are buying without experience and therefore have very little to compare between competing options other than price.
If you have high loyalty amongst existing customers, then new customers discounts can be a great way to secure new customers. Worked out correctly, the loss of the initial discount is more than compensated through the lifetime value of the customers who repeat purchase.
Discounts Linked to Spend
Customers will often increase the amount they are willing to spend in order to attract a greater overall discount. Spend over £200 and get 10% off, Spend over £500 and get £15% off. With the correct mathematics, it is very possible to actually increase your profits from each sale through setting the right discount levels. Those who get the discounts are satisfied that they have secured a bargain. Those that do not spend enough happily understand why they get nothing off.
However, discounts must always be linked to what the customer is spending. Not what they promise to spend. Promising big future spending is a key customer ploy for securing a discount on first orders. If this is common in your business then always offer the discount as part of a cash-back system. As soon as their total orders reach the £2000 they promise, you will credit back 10%.
As with the new customer discounts above, large competitors will often try to win over your existing customers with big incentives. It can therefore be smart to create a discount scheme to keep your existing customers coming back for more.
Existing customers already know that you are good, so often a small loyalty discount is the only incentive needed to stand firm and not get sucked in by other businesses’ amazing opening offers.
Offers Limited to Product Range or Certain Services
If you are going to do straight discounts and sales, then use them to push customers towards the products and services that you want to sell. These maybe products with higher mark-ups, or services which involve less hours and effort.
By concentrating your sales activity around these carefully selected items you get all the promotional advantages of having a sale without the financial impact of discounting.
Offers Linked to Time of Day or Year
Some businesses have a quiet time of day, others have a quiet time of year. In either case, costs need to be covered so even if you offer significant reductions in these periods you can still be much better off. Sure, your customer can have the big discount they are demanding off their new kitchen – but only if you can come and fit it in November. Yes, they can have £100 off the venue hire, but only if the guests arrive after 8pm.
Such offers allow you to advertise a low discounted price, but have your customer make the choice between discount and convenience. 90% of the time they will go with convenience and pay full price without a quibble.