Business Quote for the Day
Base your decision on facts, not feelings – Chris Shelmerdine
Avoiding the Discount Trap
I recently had a coaching session with a client on the topic of discounting and thought you might benefit from a brief recap.
If you operate at a 30% gross margin and cut your prices by 10%, you will need to sell 50% MORE VOLUME to just maintain the SAME PROFIT!
Discounting has its place to clear excess stocks or boost cash flow occasionally but not to facilitate long-term growth.
Here are three ways to avoid the discount trap:
- Create an entry-level offering
An entry-level offering allows you to drive potential customers to your main offering while, also, allowing you to capture customers with a lower willingness to pay. For this, you will need a value-pricing metric, so that the more your customer uses your product, the more that customer should be charged.
- Add value instead of providing discounts
Part of the reason that businesses resort to discount pricing is because they know people love getting deals and that makes them feel special.
But you can make people feel special without discounting your prices. Add more value by offering more or offer a premium service. Remember, when adding value, a little goes a long way without facing the long-term implications of discounting.
- Improve your marketing segmentation
You can get more out of your customers by improving your marketing segmentation. To do this, you need to understand your customers’ value propositions and your marketing messages need to more specific. If you’re selling to a niche customer, the value will be different amongst different sized companies, locations, and incomes.
Do I recommend discount pricing?
The short answer is no. In my experience, customers on discounts have worse retention rates so it should not be a core part of your growth strategy. However, selectively using discounts to increase sales, especially with support from your supplier, can be a good tactic when used carefully.
If you would like some help with organic growth or your discounting strategy, contact me alan@mrwcs.com