What Your Discounts Say to Customers

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Discounts work. If you are a regular reader of this blog you will know that I often write about the value of special pricing, promotions, offers, and sales to drive interest and boost purchases.

However, there is an opposing view. And it would be unfair of us to ignore it entirely. Because as much as it’s true that discounts can work to increase revenue over certain time periods, over the long term they can (not always but in some cases) also have a negative impact on your business.

The following is an attempt to explain why – not to advise against the practice, but to spread awareness about the potential dangers of discounting strategies so that you know what to look for and when to change course.

Discounts and Your Brand

Use of discounts can affect your brand – that is, the impression that consumers have of your company. Some companies use discounts quite frequently. Others can afford never to offer discounted pricing.

Whether or not you use discounts does not determine what people think of your brand. However, when you use discounts often, you are signaling two things:

  1. The value your products or services provide may be less than one would assume at full price
  2. Consumers should never buy at full price because they can always wait for a bigger discount

Apple Never Discounts

When we think of consumer brands that do not discount, Apple is the first one that comes to mind. Apple has been able to build their success as more of a luxury brand. They have sustained a higher price point in the marketplace than most of their competitors.

One might argues that Apple would grow their dominance if they started offering lower prices. They might bring in more customers, and generate more revenue, with discounts and other promotions.

But Apple has made the active decision not to do this. Most likely, that is because they are afraid what that strategy might do to the brand that they have spent so long crafting. Price is not a part of the Apple value proposition. Instead, they are focused on creating quality products that are easy to use.

Walmart vs. JC Penney

Walmart and JC Penney are two brands that consumers will generally associate with low prices. Unlike Apple, these two retailers have actively chosen to compete on price. Price is a key part of each of their value proposition.

But, they each have a different strategy for offering lower prices. JC Penney uses a discount strategy, offering frequent sales to drive people into stores. Whereas Walmart offers what they call “Everyday Low Prices” – a way to distinguish themselves as offering the lowest prices, all the time.

In fact, in 2017 JC Penney’s new CEO chose to deploy a new pricing model which more resembled Walmart’s. Rather than offering frequent sales, they told their customers that they would now be offering the lowest prices available, all the time.

What happened? Consumers revolted, sales slumped, and the CEO was fired. And they have since gone back to the original, sales-driven model.

This demonstrates points #1 and 2 up top – when you use discounts to meet your sales goals, consumers will associate your brand with discounted pricing. This creates an expectation that will be difficult to break from.

Should You Offer Discounts?

To repeat, all of the above is not a reason not to offer discounts. But it is something that you have to consider when you start making discounting a part of your pricing strategy.

Discounts and other promotions can drive increased interest, traffic, and sales. But just like anything else, if you become too reliant on discounted pricing to grow your business, you run the risk of negative brand impact in the long term.