Discount me out of cutting prices

Knocking prices down is great for business – if you’re in the discount business.
On the weekend I decided to upgrade my social clothing and budgeted $250 for a jacket. The jacket I required was casual but might be okay for some business. I may have budgeted but I would be willing to pay up to $300 if necessary. I went shopping at the local mall, which was in a frenzied discounting mode.
I bought two jackets, at different stores:  one at $90, with $80 marked off, and another originally at $175 marked down to $68. I couldn’t believe it! What a bargain – I felt I’d ripped the poor shop owners off. Now I’m trained to wait and go and buy whenever the sales are on! And I was prepared to pay full price. My motivation to buy, again, was not based on price.
It would have been much smarter to make me pay full price for the jacket and give me a pair of jeans at half price or a free t-shirt. What would happen if the shops I went to gave out $50 vouchers as I walked into the store towards anything that was over $200? My brain would immediately think – wow I can now afford $300 towards a jacket! In fact that is the way all humans think. We all love a bargain but that should never be detrimental to your profits.
A client of mine sent out an email offering discounts on his fabulous chocolates – up to $7 off some products – and got hardly any response. I said, “Give away free $2 samples at lunchtime. Advertise that.” He did and there was a line outside his shop. Do you think people just took the free sample or bought as well? Of course they did!
Seven reasons you should never discount:
1. It devalues your product or service – think of all the good reasons why you put a price on something in the first place: quality, time it took to make or produce, value in the market place, you have already made sales at that price and so on.
2. You are training your clients to ‘wait for the sales’ – instead train them to understand the value you are giving them. Some businesses rely on the discounting model, and sell based on volume – but if the volume drops where do they go to from there? – I hope this isn’t you. Also what ‘type’ of client are you attracting – cheapskate, bargain hunter, tight-wads?
3. People don’t make a buying decision solely on price. They may think of price in the beginning if they have nothing else to go by, but that’s logical thinking and most people make purchases based on the way they feel about a product or service – emotionally driven buying decisions.
4. It’s expected or others are doing it! Oh, that’s right it’s sales time so we must comply with the other twits who think it’s the right thing to do otherwise we will be missing out! WRONG! We are in business to make a profit and sales discounts are not profitable if you are cutting your margins. Check how much money you really make by going into sales. In most cases you are probably making bugger all!
5. Discounts come off the retail price therefore you lose more. If I cut my $100 retail price by 50 percent I lose $50. If I give away a $50 voucher on certain items in store this will cost me between $15 and $25 depending on the margins.
6. Many clients tell me they need to move product to allow for new seasons’ stuff or new upgraded models or some other valid reason to make room for new stock. It’s far better to incentivise a sale by bundling products together, give vouchers, ‘buy this and get another one free’, or put on special clearing events. The motive must always be to make money – not make room.
7. Disappoint and annoy your regular clients with huge discounts after they have bought something at full price. Enough said here!
Resist the temptation to discount, and do some marketing instead.
Duncan McAdams
www.mcadams.co.nz