Over Discounting Can Kill Your Brand and Destroy Perceived Value
When business is slower than desire, many companies believe discounts will bring customers who will return for more, but in truth that strategy rarely works. Well, it can work short term, but it isn't a long term strategy that will benefit your business. In time, you will lose profits, market share and customers. Here's why.
It’s a common story of a common marketing mistake: Over discounting.
New businesses and startups often believe that the best way to generate initial sales and drive brand awareness is to offer frequent discounts. It’s an understandably easy trap to fall into. The problem is that doing so (sometimes on an ongoing basis), and not making a discount or sale “special”, can erode the perceived value of your product, service and brand among customers.
Ultimately, potential customers will become so accustomed to your discounts that they will, instead, wait for a better and better deal, prolonging the sale and secretly eroding their perception of your company.
Since the Great Recession, and thanks to the “Groupon Effect” (truth be told Groupon wouldn’t be Groupon without the Great Recession) consumers are more aware that they don’t necessarily have to pay full price for the items they desire (Enter sites like Wayfair, Overstock, outlet malls and others).
Nothing has done this more than “the Amazon Effect” — whereby a consumer sees something in a store but thinks it’s too expensive so instead of patronizing the small business, the consumer finds it $2.00 cheaper on Amazon. This has been devastating for many small businesses across the country.
It’s knowing and understanding this that should drive your approach to offering discounts. There are a few exceptions, but this is because the model is part of the company’s ethos.
Over discounting is a result of the feeling of desperation to sell.
Sales are slow. No one is coming into the store or onto the website.
Social media engagement has stalled. Panic sets in.
What. Do. You. Do?
The concept of sales always come to mind as a quick driver of sales, but you take a cut in margins earned. Is it worth it? Well, maybe if you do it every now and again, but once a week and people will stop seeing value in your boutique store or service business.
If you’re a company with a limited budget and a desire to reach as many people as possible, it is tempting to run long-term ads on social media with a special discount, or even the same discount over and over again. These companies “sell” but fail to boost their value proposition, the benefits, positive customer experiences or third-party reviews, which we know are the most effective types of social media posts to boost.
Not too mention that they’re spending money on ads and giving a discount. How can they possibly make any money?
There customers don’t care about their business. Only what they can save.
Discounts or sales are meant to be special occasions, for lack of a better term, for the consumer. They are the few times a year when a consumer can get the best deal or feel special — Nordstrom does a great job at this.
Really, though, they’re giving moi a chance once, or twice, a year to shop after hours, when no one else is there for first pick at new styles, and I get a discount. Brilliant. I feel really good about myself.
While that experience is rare, the thrill of a sale, no the savings, is invigorating.
Think about it, we’re all trained, by now, to anticipate President’s Day Sales, Columbus Day, you name the day and there’s a sale. For true deal seekers, they save up to shop on these special sale days; these specific sales days only. There is a reason that people walk out of Bath & Body Works with huge bags only a few times a year.
For others, the deal, or discount, is not as important as the quality and perceived value you offer with the pricing you’ve fixed. This is actually the customer you want long term, not the disloyal bargain seeker.
Over discounting tells the consumer that your product or service is not really worth the price.
Many companies simply have a difficult time communicating the value that their product or service brings to the market — through copy and effective imagery to tell a compelling story; a story that connects with the customer and makes them feel part of the company.
But not every business, small to large get it right 100%. I’ve seen big brands have major flops of marketing campaigns. It seems like a good idea in the board room but fails with the audience.
It’s something I see often, and why companies typically bring someone like me in — to help them flush out a story that is compelling and creates an emotional attachment with customers.
Telling the right story, with the right message, through the right channels is key to both attracting the discount buyer and the value seeker. Value is not about being “inexpensive”. It’s about communicating to customers how you solve their problems for a great price; how you provide better quality than the competition and so much more.
That’s the perceived value takeaway for consumers.
On the flip side, we clearly know when a brand is in decline, like Macy’s. A once powerful prestige brand has now joined the ranks of JcPenney and others trying to compete with Kohls. But they never will, because Kohls’ model has always been Kohls’ model.
Knowing that you can have both customers — the one who seeks quality over price and the one who price is the only thing that matters.
If you can connect with your customers on the emotional level that will trigger a desire for your product, then you will effectively trigger the purchase.
How to Discount Strategically and Responsibly:
Define and understand your audience(s). This is NUMERO UNO. No marketing strategy, even discount promotions, can be successful without understanding your audience and how to communicate to them. What motivates your audience?
Follow industry and seasonal sales trends for discounting to target true deal shoppers and potentially impulsive purchases (i.e., Black Friday, end of year to move inventory or old models and increase Q4 revenues)
Create one time of year sales promotion around a day, holiday or month that is relevant to your brand and have fun with it. Make it your day. Something your customers look forward to (i.e. National Eyewear Day or International Bath Day). Make this your clearance sale and really blow it out.
Utilize affordable social media advertising platforms to build your brand by communicating the company/product’s true value to all customers. This will not only drive brand recognition but also a community of company ambassadors that you can reward in creative ways. If you advertise your discount/promotion correctly, you will see an influx of sales and increased web traffic. From here you can understand how people use your site and why they aren’t buying.
Social media, continued…one very cool use of discounts is to increase following and then also give followers a specific discount reinforcing their decision to follow and engage with your brand on social media.
Go where the deal shoppers are. If you really want to drive sales quickly, then it’s worth it to give up a percentage of sales for some name recognition on sites like Groupon or Overstock. The people who shop there are loyalist and you can tap into an already established audience of people who just may eat up your discount. However, they are rarely loyal. A lot of them are “Groupon Hoppers” — hopping from Groupon to the next.
Offer discounts for first time customers. This is a great way to encourage trial of your product or service. If you deliver a great product/service, and they see it as meaningful to their lives, they will return and tell others — encourage social shares for discounts is another great opportunity.
Loyalty Card — this little nugget is golden for a lot of businesses. After 10 visits you get your 11th sandwich free, or $25 off a massage. It’s like a challenge in your wallet to get that savings; to get that free coffee and to see how fast you can get it. It’s brilliant because of its perceived value and ensures your business plenty of sales and revenue that you can easily expense it as a marketing cost.
Strategic discounting is a smart, thoughtful marketing tactic that when combined intelligently with other marketing tactics can grow your brand the way you desire.
Discounts through digital marketing seem like the most effective, affordable and efficient way to grow your customer base, communicate and generate sales, however, used incorrectly and without a strategic approach can leave you out thousands of dollars and little return on the investment.
Successful marketing — whether digital or traditional — is all about strategy and a GREAT story or reason that creates an emotional desire. If your marketing is missing the mark, then you need to make time to be smart and thoughtful about your approach, your story, and your return will soon be far worth the time, energy and expense.
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