Why giving discounts is a bad idea

We live in a world of discounts. All around us, there are offers of 50% off, sales in every shop, happy hour in the pub. All of this makes us think that giving money off is a normal way to do business.

But – giving discounts is a bad idea. Here’s why…

Your customers can get hooked on discounts

There’s someone I follow who writes some great resources for the kind of stuff I like to learn about. I won’t give away too much about who he is because it’s a bit cruel to name and shame him, when he’s actually a good guy, but…

I’ve noticed that every so often, he’ll send out an email with a discount in it. He gives discounts for days like Black Friday when everyone is giving discounts or when he launches something new and I suspect he gives a discount every so often whenever he feels like it.

Maybe he does a discount sale when his corporation tax is due or when he fancies a holiday, just to put some extra money in his bank account.

The trouble is, now I know he gives discounts, I’m not going to buy anything from him at full price. Why should I, when I can get it for half price if I just wait for a little longer?

You do not want to educate your customers to expect a discount.

If you regularly discount, and your customers get to know it, they won’t buy in advance, because they’ll be waiting for your discount. And you’ll lose twice. You’ll lose the orders you would have got in advance, and you’ll lose the amount of money you offered as a discount.

Ouch.

Discounts are a bad idea because it’s lazy marketing

I’m always talking clients out of giving discounts. I’ve probably got a discount face, where I screw up my eyes and purse my lips if someone mentions it.

Usually, the client wants to give a discount because they’re anxious about making the sale.

It’s really easy to give a discount, and it feels like an easy way to encourage people to buy.

And that’s the problem…discounts are easy.

What’s not so easy is sitting down with me and working out all the specific other ways to encourage people to buy from you. Such as building up a great list of engaged people who are happy to buy from you at full price. Or setting up a Facebook ad campaign to get that list going. Or sending 100 personalised emails to people you haven’t spoken to in years to tell them about your new thing.

Doing this thinking isn’t easy, especially if you’re trying to do this on your own.

And implementing it isn’t easy either – it will take you all afternoon to write those emails, and, to be honest, it will be a bit dull.

Much easier to just drop your price and do a special offer.

But…Discounts are a bad idea because you still have to do all the marketing…you just get less money at the end of the day.

Just giving someone money off doesn’t make them any more likely to buy, if they weren’t that keen on buying in the first place. Or if they didn’t know about your cool thing.

You still need to do the launch campaign, the individual emails or whatever it is you need to do to sell your cool thing. Because no matter how cool it is, if people don’t know about it, or you haven’t told them why it’s cool (for them) they won’t buy it.

When discounts are not such a bad idea

You might want to give a discount if:

• You have a VIP list of people you want to reward through a discount, eg, members, people who are thinking about buying their first thing from you and you want to ease them in gently.
• You want to encourage a particular group of people to buy.

I have a client who always offers 6 heavily discounted places on her courses to people who are unemployed, because she wants to give them a chance to get her good stuff, and they wouldn’t otherwise be able to afford it.

I have another client who has a hit list of people he definitely wants to work with and he thinks they’ll eventually spend tons of money with him. We’ve worked on some easy entry projects where he can get these people to start working with him by offering a small project at a lower price.

Note that neither of these is labelled as money off, the first one for unemployed people is a “scholarship place” and the second is called a small project.

Or you might want to give an early bird discount…

The early bird discount

Now I have used this one, I admit. I’ve run events and workshops where I’ve offered an early bird discount for people who buy early.

These are the clever times where the early bird discount will work:

• When you need a certain minimum of people to come along so that you don’t feel quite so anxious about the event being a failure.
• When you have a VIP group of people who you want to reward by giving them an early bird or a cheaper price. These might be people who have come to other events before, people in your Facebook group, or people you want to come along so you can sell them something else.

Brighton Chamber did the early bird discount for their big Brighton Summit. Their VIP group was their membership, so they offered a special price for a limited time for members to reward them.

• When you need the cash in early, to pay the deposit for the venue.

The early bird is usually for events, but you can use the same idea for a new product, by calling the discount “beta testing” or “piloting”.

What’s really clever here is where you can get in your early bird money, and recycle it into making your event or product even better. The first time we ran the Brighton Summit, we didn’t know if many people would come because it was the first time we’d done a big event. Selling the early bird tickets gave us some cash to book bigger name speakers, which helped to sell the later tickets at full price.

Think twice about giving discounts

If you’ve recognised any of your habits about giving discounts here, then you might want to also have a good think about your pricing strategy overall. Usually, people who give discounts have also got their non-discounted prices too low as well.

Do you want some help with pricing?

Setting the right price is a big issue for small businesses. In fact, it’s probably one of the biggest and most important things to get right. And it’s something which I’ve worked with hundreds of businesses to get right.

To help people get their prices right, I’ve written a book about pricing for small businesses. It’s called Sweetspot Pricing, and you can get your copy right here…Your business might never be the same after reading this.

Further thoughts on discounts:

Giving it away – the art of the special offer

Photo credit to Andrew Writer, Liz Finlayson from Vervate