Why Discounting Your Prices Doesn’t Build Your Business
November 8, 2009
One of the things I hear from solo professionals pretty often is that the way to make more money is to discount their prices. I’ve railed against this for years, and told stories about talented entrepreneurs who discounted themselves right out of business. If you are one to think that discounting does your biz good, think again and take these points to heart.
- Highly successful businesses don’t compete on price alone. They are smart enough to know that being the cheapest isn’t a strong USP (unique selling proposition). Instead, they want you to spend money with them because their service is better, their designers more creative, their merchandise higher quality, they are more convenient, or their knowledge and expertise gives you a value far and above what you pay.
- You don’t want your customers buying from you only because you are the cheapest deal around. Here is one big reason why – cheap customers are not loyal customers. They buy only on price, so as soon as Sally down the street offers a floral arrangement for even one dollar cheaper, off they go. You need repeat, loyal customers. Constantly having to find new customers AND having to find them only because you are the cheapest deal around will flat wear you out. You will “churn” customers rather than create a willing customer base for your business. You will work much harder for every dollar you earn, and you will earn less dollars (because your prices are cheaper).
- When you discount constantly, you get customers trained to never pay full price. I wrote a blog post about this some time back that illustrates this. Lately, Talbot’s has gotten into the bad habit of constantly offering sales. I never pay full price there and I never will – I know that I can always wait it out and get a nice discount and maybe even free shipping. Too bad for Talbot’s that they have trained me and a dozen other people I know to never pay full price. That also gets me to thinking that if they can discount THAT much, their prices might be highly inflated to begin with – not something Talbot’s needs me to be thinking!
- It is a strange phenomena but it’s true that people will hunt down the cheapest price, gleefully pay it, and then not much value what they bought. Now what you’ve got on your hands is a customer you discounted to, and the thanks you get in return is that they really don’t even value what they got from you. That doesn’t make them want to come back to you, does it?
- If you have set your prices fairly (that means, you are making a good profit but you’re not gouging, either) then discounting may mean you don’t cover your costs. Service business are especially bad about getting themselves into this trap, because they are not purchasing product to resale. Instead, they are selling their time and expertise. I’ve seen hair dressers and massage therapists deep discount 30% only to find they are working like dogs and can’t pay their rent and utilities at the end of the month. Have they gotten clients? Yep. Are they going to stay in business? Nope. They have, in essence, worked themselves right out of business.
If you want to offer a special deal in order to grow your business don’t do it by discounting. Instead, ADD a small product or service without charge. This does TWO things – it ADDS value rather than lessens values. And, it shows your customers a new product or service that they might not have known you have – something they may decide they can’t live without the next time they are in.
Bottom line – in most cases, discounting doesn’t serve you in building your business. Solo professionals and small business owners are not the same as super-big-box stores who can spend millions advertising and churn new customers constantly. You want to cherish your customers, treat them well, offer fair value, and give true benefits in your products and services. This will build a solid business with loyal, repeat customers who value you and what you offer.
(c) Sue Painter
Setting Your Price and Getting It
April 29, 2008
Here’s a case study in how an art supply company trained me to NEVER pay full price.
People who know me know I’m in Internet shopper and a paper crafter. I’m always feeding my habit of new and different papers, inks, stamps, and embellishments. One business I used to frequent (notice the past tense there) was Wilde-Ideas Paper Art Supplies. For months now I have been saving their marketing e-mails so that I can show you this company’s fatal error that caused a loss of one loyal customer (me).
Take a look at their e-mail subjects:
• Exclusive 30% Storewide* Savings Holiday Sale – Final 24 Hours (12/8/07)
• 25% Holiday Savings – Still Time for Delivery by Christmas (12/13/07)
• Still Time for 25% Storewide* Savings & Delivery by Christmas (12/18/07)
• Year End Inventory Clearance Sale 35% off (12/27/07)
• Prices Slashed – up to 50% Storewide Savings (1/3/08)
• Prices Slashed – up to 50% Storewide Savings (1/6/08)
• Embellishments Blow-Out Sale – Save up to 35% Department Wide (1/15/08)
• Winter Sale – up to 50% Savings & Free Shipping Offer (1/17/08)
• Craft Tools Sale – Save up to 50%* + Free Shipping Offer (1/22/08)
• Craft Adhesives Sale – Save up to 50%* + Free Shipping Offer (1/24/08)
• Inventory Reduction Sale – up to 50% Savings + Free Shipping Offer (2/10/08)
I could go on – I actually didn’t list all the e-mails I received during this period of time. But you get the idea.
Here’s my question for you:
• Should I ever, for any reason, order from this company and pay full price?
My answer is – NO! Wilde-Ideas has trained me not only wait for a sale, but wait for a super sale with deep discounts and free shipping. This company would probably die to know that they are regularly referred to on paper artist’s chat sites with the comment “oh, just wait, the sale will get better.”
It gets worse. Not only has Wilde-Ideas (which is a neat business with lots of goodies for artists) trained me to wait for a GREAT sale, they also have me wondering:
• Do they have such a horribly high mark-up that half price is actually what I would pay every day elsewhere? Should I just go shop elsewhere?
• Is this company desperate for sales and going down the tubes? Will they ship what they promise quickly?
I don’t know who heads up their marketing, but if I was that person’s boss I would be beating him (or her) with a big stick. WHAT ARE YOU DOING?? You are training every customer on your e-mail distribution list that they should EXPECT to regularly pay less than full price.
Pricing your product and services is part science, part art. You know what your goods cost. If you sell for less than they cost you, you won’t be taking that vacation in Rio anytime soon. That’s the science part – cost out, cost in, total it up. The art part is harder to quantify but every bit as important. What is the perceived value of what you offer? If you perceive your service as worth $100 per hour and people are snickering behind your back then you’ve got a perceived value problem. On the other hand, I’ve had marketing students price their stuff so low that they will never make a decent income.
Pricing well means that your ego has not inflated what your product or service is worth, you know your costs cold and pay attention to them, you discern a fair price based on customer input, your experience, and demand for what you offer. Make note that if you have to CREATE demand you will not be able to price your product or service as highly as YOU might think it is worth. However, if you price wisely, educate potential customers, and build a business from that base you will one day be able to charge more. Why? Because, you have successfully and faithfully created MORE perceived value.
I realize there are strategies for “loss leaders” and getting people into the marketing funnel. But as a small business you do not have the deep pockets of a Wal-Mart or a Sam’s (or, apparently, of Wilde-Ideas) to offer super-low cost and freebies in order to gain customers. If you decide to do this, be cautious, wise, and infrequent.
Keep in mind that if YOU don’t value what you do, your customers won’t, either! Aim for a fair price, give outstandingly fantastic customer service, work consistently, and your business will grow. If you need an outsider’s help, ask for it! You can e-mail me or find someone else to help you straighten things out.