Recently the concept of discounting has found renewed life, mostly due to the perception of a troubled economy and the ease with which it can be measured. Some social media applications have even been tweaked to provide a platform for businesses to discount their products/services to their followers/fans/connections, etc. The topic of today’s post is — Is discounting a good idea?
While I’ll admit there may be some positive reasons to discount, my opinion is that it’s actually damaging to most businesses and brands. Here is a comparison/contrast of 2 trains of thought. You decide for yourself which is the better method for your own business.
McDonalds is famous for its Happy Meals. Now, I realize the prices used here are not accurate, so please allow me some creative license to make the point. A Happy Meal usually comes with a cheeseburger ($1.19), small fries (.99 cents) and a small soft drink ($1.29). The combined price of each item totals $3.47 if you ordered them separately off the regular menu. However, McDonalds has created a bit of marketing magic and found a way to actually sell more food, earn higher profit margins, while simultaneously making lifelong advocates for their brand!
The way Mickey D’s does it is by adding value to the meal. There is no discounting involved here. They mass produce a colorful and kid-hypnotizing box in which to place the food and add a small plastic toy to forever seal the bond of love between the child and the McDonalds brand. The price for the box and toy probably add up to less than 25 cents per meal (and often less because of McDonalds’ ability to partner with movies, athletic teams, and other entertainment acts that will happily supply the trinket for nothing). New cost of the Happy Meal: $3.47 + 25 cents = $3.72 . McDonalds then charges $4.99 for the Happy Meal, and earns an additional $1.27 per meal! To quote Wile E. Coyote, “GENIUS!!! Super GENIUS!”
On the opposite end of the spectrum is an example that plays out annually here in our very own community of Columbia, MO. Over the past few Christmas shopping seasons, a local community magazine has produced a Holiday Wish Book. This publication is produced in support of a promotion in which the advertisers each agree to offer significant discounts on a specific weekend. Shoppers then purchase the right to obtain these discounts via a “VIP” type card. (FULL DISCLOSURE: I work for a magazine that competes for some of the same advertising clients.)
The idea of these retailers offering “significant” discounts during the busiest shopping season of the year has always seemed illogical to me. Even more shocking is the fact that the community magazine, which has done a nice job of positioning itself and creating a prestigious brand, encourages their advertisers to offer these discounts. In my opinion, this only serves to undermine the business and brand of the advertiser. While it may generate ad sales for the magazine, and perhaps some short term sales for the advertisers, there is a great risk that it also creates long term damage to the advertiser’s bottom line.
You might be asking yourself why discounting is damaging to a retailer, or any other business for that matter. Great question! Thanks for asking… When you discount, you imply that the value of your product/service does not measure up to the normal asking price. It trains consumers to wait until you discount again before making a purchase from your store. It also has the ability to damage long term relationships you have built with regular customers, who are worth FAR more to your business than a single sale of a discounted item.
Imagine, if you will, that you are dining at one of your favorite restaurants. It’s the one you at which you celebrate all your major milestones: birthdays, promotions, anniversaries, etc. The entire staff knows your whole family by name, and you never have to ask for anything because they know your preferences. You’ve easily spent thousands of dollars at this establishment over the past few years. Yet another wonderful meal has been consumed and you’ve thoroughly enjoyed the evening once again. As you are waiting to pay your tab for the festivities, you overhear the cashier telling the person in front of you, “You saved 50% on your meal because of the VIP card. We’re so pleased you could visit us for the first time this evening! Please come again.”
How would you feel? Disappointed? Upset? Disenchanted? Odds are you would feel like your special relationship with this particular establishment had forever lost its magic. Why aren’t you receiving the same treatment as someone who is there for the first time? The restaurant has most likely done permanent damage to its brand in an effort to find new business through discounting! This scenario can play out in any industry: jeweler, florist, clothier, auto dealership, salon, etc.
Now, does discounting still seem like the best way to increase your bottom line, or should you look for ways to add value to your offering, as in the McDonalds’ example from earlier? And now you know someone who is willing to help you add value when you are ready! Happy Selling!
Tags: advertising, brand, branding, discounting, marketing, McDonalds, valueCategories: Advertising, Business, Business Development, Economy, Management, Marketing, Media, New Business, Sales, Success.
