Is offering discounts the right strategy to attract customers?

If there is little real or perceived risk, as in some consumer products, then perhaps it’s OK. Example: an introductory discount on a new brand of toothpaste might help get the brand going.

In BtoB, however, discounting to attract new customers is almost always unwise because it calls into question the product or service’s genuine value. That is, if a vendor/suppler is willing to drop the price to attract new customers, what are current customers supposed to think about the price they are paying? Is it real or it simply a “bogey” … a benchmark for acceptable margin giveaways?

Besides, I would caution all buyers … first-time and ongoing … to beware discounted surgery, parachute-rigging, fire-fighting equipment, food purity test kits, airplane engines, or wedding gifts.

It could be. It all depends on strategy and type of brand. I am not an expert on the topic, but here is my POV on two examples from Restaurants and Retail.

Last weekend I went to this restaurant in NYC after buying a groupon. A nice Italian place. The discount was $30 for $60. I couldn't help but notice the theme of discussion I heard at several surrounding tables was restautant.com, groupon etc. When it was all said and done for me, I ended up paying $65 for a veal dish, a pasta dish, and a glass of wine. That includes the groupon discount. I wonder if the entrees and wine were priced at roughly half what the current menu costs were, if it would result in a more crowded restaurant with less of a need to pay the steep groupon costs to get people in the door?

Other examples of discounts are retail. GAP/Banana Republic, for example has conditioned me to only go the the sale rack and wait for 30, 40 or even 60% off before purchase. The question I have is, are GAP and are the other retailers who sell clothes at such a discount making money? I'll bet they are but at what cost to the brands will result? If you compare this story to the likes of JCrew, a company who is not actively discounting, my perception if JCrew is a lot stronger of a brand these days.

I agree with Michael 100%. One wise salesperson said to me: "Would you like me to discount my effort?" Beware of price buyers. They will continue to chip away at you. Price your products fairly and make the business case for why people should buy.

It is a context-dependent answer. In Fast Moving Consumer Goods, like milk for instance, if your inventory is too high, and the shelf life of milk is getting over, a discount might be in order. Better a discount than to waste the whole production. Airlines use variable pricing depending on the inventory available, that strategy changes price so often, that speaking of a discount sounds like a redundancy.

On the other hand, for a luxury product, a discount may hurt the brand too much. I would think thrice before discounting a luxury product. However, discounts might be disguised: Give the discount to the retailer for increased sales support, or build a bundle such as a smaller vial of perfume along with the normal one.

I read that the human brain pays more attention to dollars off than a discount percentage. Maybe it has something to do with "math" phobia around percentages and fractions.

I agree with Michael and Dave; discounting devalues the product or service. I would not want to lose good customers that I've worked hard to get in other ways because I discounted the cost for new customers who are simply shopping for the best "deal."

Looking at it from a retail perspective:

The very short answer is "It depends".

The longer answer is "Discounts are a good way to drive traffic into the store or onto the retailer's site. Generally they are most advantageous at times when consumers might otherwise not consider going shopping (like dead of winter or broiling summer). Obviously they drive a lot of traffic during the holiday season, but I'm not sure that's as valuable as the more traditional usage."

FInally, there are discounts and promotions that are planned (like the ones we saw on Black Friday). These discounts are baked into the retailer's planned gross margin at the start of the year. Anyone who tells you otherwise doesnt understand the retail process. HOWEVER, storewide discounts you see right before a holiday - like December 13-20, usually are unplanned and generally NOT a good thing. They are an indicator that the retailer has to liquidate excess inventory.

The "cherry-picking" customer is a fact of life, and most retailers don't plan their lives around him/her. They presume they'll sell some volume of product at higher margin and others at lower margin."

Hope that helps.

No, offering value is the preferred strategy. It takes a lot more thought and work than printing/emailing coupons, but it needs to be done. Starting a relationship with a discount isn't exactly putting your best foot forward. Just ask all the businesses that have had negative experiences after tossing out a Groupon (or clones) offer.

Tricky question with lots of possibilities for answers. In general, in both b2b and b2c worlds, discounting creates a couple of things: commoditization of a product or service that ought to have a value proposition rather than a price proposition (unless you are a close-out retailer).

Coupons, samples, whatever, are preferable to discounts in new product introduction. The discount, whenever offered, can set a new "real" price expectation. Some retailers have trained their customers to wait for the next discount; as a consequence, a smaller and smaller percentage of sales are at full price. It's one thing to take the Jos. A. Bank road, with a plethora of discounts that all amount to pretty much the same thing. It's another to cheapen the cachet of the brand (e.g., Macy's) with too frequent discounts on too many items.

There are legitimate exceptions, overstock with expiry concerns, seasonal misadventures with warm winters and cool summers. There are also (expiry issues aside) alternative channels for disposition that do not damage image and brand perception. In general, don't do anything that impairs brand positioning.

For services providers, the offer of a discount sounds like desperation and vulnerability. The greedy customer might take advantage; they can smell fear. The desirable customer gets turned off by the offer to cut price too soon and too often; he/she is interested in quality and value (unless your service is already commoditized).

Depends on your business model and goals...

There ARE a number of legitimate and reasonable approaches for using discounting...

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- Do you want to be the "Wal-Mart" player in your industry, low price high volume?
- Is your product or service a commodity or quickly heading in that direction?
- Sell re-branded goods or services under a different brand / unit / service mark?
- Are you a Hyundai trying to break into a saturated market with a long term goal of moving up the value stream over time?
- It may also be a valid opportunistic move to consolidate market share in a down economy, or against other competitors, if your company has sufficient cash reserves.

Then the short answer is probably yes...

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However if you do not have a clear business model which uses the discounting model as a core component of your business direction and strategy then this may be a dangerously reactive direction.

On the other hand, if you are not in a commodity space, there are also new economic realities so a discounting strategy is fine so long as it is carefully thought through and you have considered your discounting exit strategy.

As long as you have a strategy that doesn't alienate your existing customer base it can have benefits. It could be part of a longer term growth strategy with eventual upsell and cross-sell possibilities. In the end it depends on what your reasons for the discounting approach is.

Thanks for presenting some great considerations regarding coupons and discounts. Here's another question: What if a company has a history of discounting, thereby lowering the perceived value of their product, and you want to turn the ship around to change the perceived value and end the stream of coupons? What's the strategy and how long would it take? I have a feeling it could be painful.

As noted already it depends on who you are targeting as your customer base, and where you want to position yourself in your market.

That said, I personally prefer adding value rather than discounting product. The goal in either case boils down to how much bang for the buck a customer perceives they are getting.

Together, let's put the fun back into work!
Belldon Colme
belldoncolme@gmail.com

I think that discounting, when used at the right place and time, can help. Still, you wouldn't want to diminish your product/service's value just to get someone to buy. Just take a stab at Apple - they stick to their price and still, people are buying the value that their products have to offer. As Steve Jobs said, "Sell Dreams, Not Products."

What value do you have to offer..?

it may be right first meet after product and ur communications and also mouth advertise important things