Are Constant Deals and Discounts a Good Strategy?

Ensuring a profit is job one for a small business. How can you offer sale prices and not cripple your cash flow?

Are Constant Deals and Discounts a Good Strategy?

John Hafner photo

Take a look at the advertising circulars that come with your Sunday newspaper and it’s not hard to find yourself asking this question — does anything sell for “full price” anymore?

Retailers bombard us with Black Friday bargains during the holiday season. Online booksellers tout prices for best-sellers 40 percent below what is posted on the inside jacket flap. Brick-and-mortar stores slash prices to try to keep up with the deep discounts offered by web-based merchants like Amazon.

And it’s not just in retail. In a world where consumers seem to feel entitled to a deep discount everywhere they turn, the pressure is mounting on service businesses, too.

Competition and a fundamental change in consumer psychology are posing challenges to the old model, when the price structure was supposed to adequately cover the cost of operation and ensure a reasonable return for the work delivered.

This change can be especially vexing, because if you’re not careful, you could wind up in a no-win situation: Refuse to offer any discounts or deals at all, and you risk falling by the wayside to aggressively priced competitors. Slash prices indiscriminately, and you’re in danger of training your customers to devalue your work – and cutting your own throat in the marketplace.


Tap Into Emotions

I posed questions about this issue to a cross section of marketing experts. My correspondents came from outside the tactical industry, yet their niche businesses have some things in common, and their insights are easily translatable.

Wendy Kenney, who advises auto repair shops and other businesses, explains how deals can serve as a positive force in generating sales.

“The tactic of offering deals is a psychological inducement to encourage customers to take action,” says Kenney, who operates the consulting firm 23 Kazoos based in Sitka, Alaska. “It taps into the person’s emotions and may incite them to action because of their fear of missing out on a great deal.”

The way these practices can train customers is demonstrated in the recent turbulent history of retailer J.C. Penney. A few years ago, Penney tried to shift away from a model of frequent sales in favor of “everyday low prices” — and wound up driving away customers in the process, Kenney notes. The power of the promotional sale is evident today on any Saturday morning at the department store, “when they offer their ‘Door Buster Deals’ to a store full of ‘hungry shoppers,’ ” she observes.


Bundle It

Kenney — who in addition to her consulting work is the author of How to Build Buzz for Your Biz, Tap into the Power of Social Media, Publicity, and Relationship Marketing to Grow Your Business — suggests many more circumspect approaches that can tap into the customer’s instinct to grab a deal and won’t send your business in a race to the bottom.

“Offer a package deal,” says Kenney. “Instead of just discounting one common service, bundle together a package of services with one price.”

You can see that at your local auto repair shop, which may offer deals such as an oil change, an air filter replacement and an alignment at a bundled rate lower than the individual services would cost on their own.

“Because it’s two or more services bundled together, the customer is less likely and less able to associate a certain price with a certain service, therefore not locking that price in their mind and devaluing your service,” Kenney points out.

If you take that tactic, she adds, “Make sure you always let customers know how much they are saving, or what the value is.” For example, let’s say the individual services combined in the bundle would normally add up to $100, while your bundled price is $59.95. “Don’t just say the bundled service is $59.95,” Kenney says. “Say that service is $59.95 — a $100 value.

Give them context about just how great a deal it is.”


Partners, Referrals, Seasonality

Perhaps you can team up with other vendors whose product niches don’t compete with yours, yet still complement the sort of work you do.

“Offer a package deal together so that there is added value and reach,” says Margo Schlossberg, marketing manager for JumpIt Pass, a subscription-based service that helps families find classes for their children in activities ranging from the arts to sports in the Washington, D.C., area.

Schlossberg also suggests offering customers incentives to refer other potential customers — say, a one-time discount on gun cleaning for a client who refers a neighbor or friend to you for service.

The medical spa business might not seem to have much in common with what you do, but Julia Avalon, who runs Avalon Medical Spa in Miami, Florida, offers some sensible ideas that aren’t limited to laser removal or Botox injections.

If you find your business has ups and downs that follow the calendar, Avalon says, it might be worthwhile to tie deals to certain days of the week or months of the year – discounting routine procedures during slow seasons.

Add Service

Service contracts can be another way to offer limited discounts without devaluing your main business. One approach would be to provide a contract for continuing service with a low introductory price for the first visit, while the regular maintenance visits that follow would reflect the service’s standard price.

Like Kenney, Avalon also suggests package deals “with add-ons a client may not have thought of but do not require a lot of time.” A variation on that approach would be “complimentary add-ons that would bring value to the client and set you apart from the competition,” Avalon adds. “This can be done even without lowering the initial price.”

Kenney, too, is a fan of throwing in a small — but not meaningless — “added value” bonus. When the customer buys a certain service, give them an extra freebie, not just a token trinket, Kenney says.

“The key is to give something of tangible value. The dollar value of the freebie item doesn’t matter, it’s the perceived value to the customer,” says Kenney. “Basically, give them something they want.”


Make It Work

So are deals and discounts a good strategy? In the current environment, they might be unavoidable. The bottom line is, don’t just hand them out like Monopoly money. Be strategic about them and find ways to make them help your business, not just for short-term revenue but long-term sustainability.

If your deals live up to that standard instead of being a no-win burden, they truly can be a win-win opportunity — for your customer and for you.




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