Wednesday, December 15, 2010

Why Discounting Your Product or Service is a Shit Idea

discount tags


I read the other day that discounting is the most expensive form of promotion. You can tell by the post title that I would agree but only if we are talking non-B2C.

Not only to do you lose revenue but most likely you have also paid for the discount to be advertised e.g. a newspaper ad. It is especially dangerous if you are a premium brand as I there is something very subtle and reinforcing when a premium brand is never (or very rarely) on sale.

This time of year is tough especially if you work in B2B or B2G (Business to Government). Lots of places are slowing down and shutting down over the Christmas period and consumers are distracted with all things festive. The reaction of poorly prepared and educated marketers and sales staff is to discount to increase activity (and, in theory at least, revenue).

This is a shit idea but at the moment I see lots of businesses offering 2 for 1 deals or 50% off.

If you are in this position in B2B or B2G, and considering such deals, do you really think people are suddenly going to think "Oh, I knew about that offering but never had a need. But now they have a 50% discount I really need it! I know that it is a really busy time of year and I am on leave but they are on sale! I am going to buy it!”

I don’t think so and if you think i am wrong then you are naive. It is does it hurt the bottom line – the opposite of what you are trying to do.

Imagine you run training courses and a course normally costs $2000. At the 2 for 1 or 50% offer it means your revenue per head is $1000 less. That now means that in a quiet period you need to sell twice as many to get to your budget. Remember – the reason you are discounting is because you don;t have enough activity and now you want to double the activity you need to hit budget?

Why would you do that? You only make it harder - not easier!