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2023: Are Discounts Still For Dummies?

         In 2015, I wrote a blog post on LinkedIn with the witty name: “Let’s Put This Bluntly: Discounts are For Dummies!” 

         At the start of 2023, I saw articles pop up about Tesla’s rush to discount their cars to “drive demand” and I decided it was time to revisit the OG blog post to answer the question: “Are Discounts Still For Dummies?!”

         What does a discount say about you? 

  1. Your brand ain’t strong: Price is a signal to the market that you either have your act together and have built a strong brand or if you are discounting that your brand is weak. 
  2. Discounts tell me that you don’t believe in the value of your product or service: This might try and be normalized with “get-in” pricing, “introductory pricing”, or some other special price nonsense. What it means is you don’t believe in the value you are offering. 
  3. “Wait! I might make a better offer later.”: Discounts teach your market to wait for the better deal. If you are dropping the price 20% now, how do I know it won’t be 25% off tomorrow?

What does a discount do to your business?

  1. You lose profitability: How much? Depends on your original costs and profit margin, but research puts the discount’s cost to your profit at about 10% for every 1% you drop your price. Big dollars. Big cents. 
  2. Undermines price integrity: What’s this? Price integrity is your ability to get the price you want to charge for your product and have customers pay that price. Discount and that ability is out the window. 
  3. Kicks dirt in the eyes of your brand: If you discount, you drive your brand towards the commodity level. Full stop. 

What can you do if you don’t want to discount? 

  1. Focus on your top of funnel brand efforts: The theory of the long and short of it, tells us that for the average product, you are going to want to spend between 50-60% of your promotion budget on top of funnel, emotional brand building efforts. You are doing this because it helps you create a short cut in your buyer’s mind that will make them have to buy from you. And, it makes it easier to justify your price. 
  2. Do your research: I’ve been doing some research on pricing and the number one issue with 36.4% of the respondents is that they just don’t understand their markets well enough to price effectively. If you don’t know your market, you need to do some research to figure out what your market values and needs. If you do that, you’ll have a better idea of what your price can be. 
  3. Add value: Price = Value. To get the price you want, you want to elevate the perceived value of what you are selling. You can do this using brand activities. You can do this by adding value within the product offering. You can also achieve this by comparing your product to something that your customers might think of as a comparable alternative. The key is to elevate the perceived value of your product and offering. You don’t do it with discounts. You have to add things. 

As I said in the OG article, discounts are a sugar rush. You get a boost of the sales number in the short term, but it comes at the price of discounts, brand equity, price integrity, and, in most cases, overall demand. 

You can try it, of course. But I think “Discounts are still for Dummies!” 

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