May 23, 2018 The 5 Myths and Mistakes of Pricing – Mistake #3 – Over Discounting
Over discounting costs small businesses money every day. It’s a bad practice.
Over discounting comes in two flavors. The first is when a company offer discounts so frequently that customers don’t want to buy without a discount. The second occurs when discounts are offered when they are not needed to get the business.
A great example of over discounting is Macy’s behavior. They offer so many discounts, so often, on so much stuff that anyone who buys at full price would think themselves a fool. Their regular price is so high, I doubt they sell that much merchandise at those prices. I for one like their Club Room men’s shirts. Their regular price is over $50. I have been buying them for years, typically around $25 but also as low as $14.99 and as high as $29.99. I would never buy them at the regular price. Macy’s has devalued those shirts. I think their strategy is to have a high list price so everyone thinks they are getting a deal when they are on sale. It does work a lot but based on their financial results, I don’t think they are getting the most revenue they can get from the goods they sell. They are over discounting.
An example of the second type of over discounting is pizza shops that make coupons available to all their customers, much of the time. Some people need $1 off to be enticed to buy, others need $2 off and still others $3. When customers who would be motivated to buy with $1 or $2 off use a $3.00 off coupon, the pizza shop is over discounting and losing out on lots of money. A better strategy would be to have a rewards program and offer single use coupons only redeemable by the original recipient. These can be sent out by email or other methods. This can be accomplished by having a unique code for each coupon which is paired with the customer rewards number at time of redemption. The company tracks what reward motivates a particular customer and then generally only sends the amount needed to get the customer to buy. Sometimes, just to mix it up, the company can send out a more generous offer. While all of this takes some technology to be made workable, it is a much more profitable discount strategy.
When you over discount, you devalue the product or service that you sell, which drives down the revenue you can get with a given volume of sales.
Bryan B Mason
Apollo Consulting Group, Providence, RI