To Discount or Not to Discount?
-Bob Salvas Success Mail
To discount or not to discount – that is the question. If your definition of discounting is offering a percentage off your normal selling price of a product or service, it might not be the best strategy for you. In a tough economy a lot of merchants try to fuel business by offering discounts. They reason that their customers have less money to spend and/or they feel a need to undercut their competition. But offering something off a specific item can backfire, except maybe if you are WalMart. The problem with discounting is that it can reduce the perceived VALUE of what you are selling- so if you advertise that your widgets are $100 and 10% off, the VALUE in the customers’ eyes is that those widgets are really only worth $90. If at some point you go back to $100, the customer may still see this item as not worth more than $90. Let’s face it, when it comes to business, VALUE is a key word. Is the product or service I am paying for worth equal to or more than what I am being asked to pay? If so, the value is there, if not, it’s not there. So, if throwing a percentage discount on an item or items is not the best use of my discounting dollars, what else can I do? Some suggestions: -ADD SOMETHING FOR FREE TO EXCEED THE VALUE I was in River’s Edge Flowers (in Pawtuxet Village - Cranston RI) in February buying my wife some flowers for Valentines Day. The month before I had purchased some ‘discounted’ flowers from a grocery store – the roses never opened and died almost as fast as I could get them in water. I was NOT making that mistake again. I wanted nice flowers that I knew River’s Edge could provide. I knew they would last a while and I was willing to pay for that (the VALUE was established). Jim Bradley, the owner of the flower shop, asked me in casual conversation about my kids (they are 12 and 15 years old). As I was leaving, Jim gave me two beautiful white long-stemmed roses which my children could present to my wife on Valentines Day. Did Rivers Edge exceed my expectations? ABSOLUTELY! A useful form of this idea is seen a lot on the internet when ordering merchandise. FREE SHIPPING is so common that it is almost required in certain circumstances. Remember the knock on internet shopping for a long time was that the cost of goods was an excellent value but the cost of shipping negated that.
-BUNDLING Similar to adding in a free gift, the idea here is to take two or three items that are related and bundle them together for a price that is lower than if you bought all the items separately. The items must have an affinity to each other- think McDonald’s Value Meal. The important thing is that the products go together and if you have a retail location, you must display them together (or in the case of McDonald’s, display it on the signage). By bundling, the customer does not necessarily think any one item is ‘discounted’ and may actually end up buying more goods than they originally had planned. If the profit margin on the burger is 20 cents and the profit margin on the fries is 20 cents and you sell both for 10 cents less as a combined price, well you still make 30 cents – more than you would have made had the customer just bought the burger. -OFFER A DOLLAR AMOUNT OFF ON ANY ITEMS If you have a variety of products or services and can offer a fixed dollar amount off, that will usually resonate as something more tangible to the consumer instead of a percentage amount. It could even be interpreted as a small gift certificate (and everybody likes gifts). More importantly, by having it available to all your goods, it does not negate the value of any one item or line in your store. By the way, it is ok to have a minimum purchase amount if the free dollar amount gift is substantial. Staples does this frequently$10 off when you buy at least $50 or something like that. I find myself going up and down the aisles and buying things like post-it notes and copy paper to get to the $50- not that I needed that stuff today, but it was stuff that I needed, so why not take the money off? Notice the words we used in these three suggestions: FREE GIFTS, GIFT CERIFICATES, BUNDLING….and that is actually part of the strategy. In a sense, it may be a discount, but we try to not use the word ‘discount’. Sometimes the worst thing about discounting is the word itself. We often apply a negative connotation to certain words in our language. So, even though it does not always make sense, FREE is usually good and DISCOUNTING is usually bad. Let’s end with a quote from a former First Lady of the United States to make this point:
“It looks like it's been furnished by discount stores.”
- Jacqueline Kennedy Onassis