Thursday, August 25, 2011

Do Discounts Work?

As I'm spending more time assisting my clients with some marketing ideas, discount programs have been a heavy topic of conversation.  Here is a 'rant' I gave to my friends at @DealSavant regarding my opinion of discount programs...

Who would have thought that trying to get customers in the door would actually force businesses to close their doors?

Today many businesses think that in order to get people in their doors, they have to paper the town with coupons and have crazy specials. The minute they take them away the customers stop coming in.  Why?  Many consumers today have tightened their budgets, and often time only ‘splurge’ when they can get a discount.  However, many business owners are constantly trying to outdo their competition with the best offers.  When does it stop?

In marketing, I know that it’s good to put your advertising efforts in every avenue financially reasonable – but we shouldn’t have to give our products away in each!  As a business owner, we try to price our services to stay competitive, but if our prices are so low, people may question quality.  Now I don’t mind offering incentives for upgrades: My husband is a photographer, and we occasionally offer “buy a photo package get additional prints free.”  Our margins allow us to do that.  However, I’m not discounting the sitting fee in hope that someone will buy enough prints to cover that cost.  

For example, a local radio station contacted my husband to participate in their half off program.  They wanted us to offer a $1500 wedding package for $750 for one day.  When we asked what our portion of it was, they said “None, its payment for exposure”.   Now, I know radio spots are not cheap, but what if it had worked? We would have lost at least $1500 if one person bought the deal – and a lot more if more than one bought it. 

The problem that I have with these various discount programs is that the people who are purchasing them seem to be only getting them for the savings, with little to no intention to ever go back.  Early on, one of my clients told me that they would not participate in any of these discount programs because they didn’t want to give away their talents.  However, they are very open to give special incentives to their current customers; it’s a way to say “thank you” for being a great customer, and we know they’ll be back because they have already proven that they will return.  The customer in turn will be more likely to tell all their friends about this great gift to all their friends (the power of Social Media makes it stronger)!  Now, that same client did, after MANY months in business, participate in a discount program, and offered an extra incentive to have those probable one-time customers make additional purchases or schedule their next visit.  And it's working.

I’ve watched businesses who participated in a card-based discount program: it gives the cardholder access to special offers – no limit unless specified by the business.  Because some these businesses did not put a limit on this program, they saw many new customers who became repeat customers. Obviously, it worked… too well, because they were only getting the discounted product.  The business began to lose money – a lot of money.   And of course, when they removed themselves from these programs, they lost those customers.  

So what do we do?  Yes, sometimes we have to give a few things away to get our names out into the world.  But we have to be strategic!  Papering the town with coupons is not going to bring us the quality customers that we want or deserve.  We have to step out of our store and find them!  Partner with the businesses that have similar customer demographic, participate in the events where your clients will be. Then, give them a taste of the things they can get from you, and then give them a small incentive to come in.  Once they’re in – if your services aren’t what they want/need, they won’t be back (so you’d better be sure you give every customer 110%)!    

Consumers today are informed, and are savvy.  They know what they want but want a bargain.  But we all want quality – if we as business owners stop worrying about giving the greatest discounts and marketing schemes, and start focusing on making sure our product is the best around, the customers will find us.  And they’ll bring friends.

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