Top 3 Dangers of Discounting

Top 3 Dangers of Discounting

Every good horror movie has its signature music that tells you something bad is about to happen. The music starts with a slow ominous rhythm, and then builds to a climax that announces the arrival of the monster or killer.

JAWS. Halloween. Psycho.

You can probably hear those unforgettable notes as you read this.

Businesses do the same thing with their marketing strategies. Things like “loss leaders” are intended to create a sense of urgency and boost sales.

But like any horror movie, there are always dangers lurking in the shadows when a business discounts its products or services.

Just like with those classic movies, here’s the “Part 2” that I promised from our conversation about the gas station owner who offered an unprecedented $2.50/gallon discount for a 2-hour window last week.

While I wasn’t one of the drivers who got into that incredibly LOOOONG line (we talked last time about why I hope no other business owners or their employees did either) …

Let’s unpack a few of the dangers of simply offering a massive attention-grabbing discount and expecting a windfall of sales and new customers.

Here are three of the biggest dangers of discounting (and what to do instead):

1. Driving “transactions” and instead of creating “relationships”.

Let’s be real for a minute. It’s 2022. It’s easier than ever, and it’s almost expected, that to get discounts of any real magnitude, people understand that there needs to be some way for a business to have a path to recoup lost margin.

In the gas station example, perhaps this would be joining a text club or email list. Either of which could happen in seconds with a QR code or staffing the pumps for this short window of time.

Sure, the cost to run the promotion marginally increases, but the opportunity to bring customers back is infinitely greater than that small investment.

If you don’t run a business that is built on driving repeat traffic to a physical location, the same principle applies.

Don’t discount without a clear and simple plan to re-engage your new customers to future products or services at sustainable margins.

2. Missing out on easy and logical ways to immediately capture sales of non-discounted items.

This is a big one.

Bundling other products or services alongside (or instead of) the discounted item is often forgotten. Perhaps the most obvious in the gas station example would be to upsell a car wash along with the cheap gas.

The idea of saving $10-$25+ on the fill-up already creates a sense of “playing with house money” that can then easily be spent on items that feel like a splurge, such as a $7 – $15 car wash.

What if the owner doesn’t have a car wash on location? We’ll cover that in mistake #3, but before we go there…

We know that gas stations don’t make money on gas. It’s all about getting people to come into the store and buying their marked-up convenience items.

If I had a line of customers that stretched for miles, you’d be darn sure I’d have featured items in the store to increase how many customers came inside to get it.

Why not have a staff member walk by the cars in line and hand out a coupon, voucher, or flyer to help make sure they do come inside?

More than zero of the cars in line will have an extra person in the car who could easily spend time buying items in the store while the driver is in line for gas.

Again, taking this outside of the physical store use case:

Maybe I offer a discounted tune-up on an appliance or equipment in a customer’s home…

A first-time special on landscaping or pest control services…

Or a free estimate, inspection, drain clearing, or any number of one-time or seasonal services, etc.

Each one of these represents an opportunity to get into a customer’s home to not only make a great first impression, but also to show how you can serve them by assessing other needs they have now – or in the future – to establish the trust that will lead to sales at full rates.

3. Not leveraging joint venture opportunities.

Most businesses simply ignore, or don’t even consider using, a joint venture to maximize the exposure and to co-invest in the discount strategy (and thus preserve some of the margin lost from the offer) …

I researched the news story that hit our local station for the gas station. Turns out, they did “team up” with a local political group who was looking to use the gas discount offer as a means to draw attention to the group’s efforts to initiate legislation geared toward improving economic policies.

I can’t speak to what arrangements were or were not made to help the gas station owner, if any, but assuming that most businesses may not want to explore political partnerships to drive sales, here are a few ways to use joint ventures that often go overlooked:

Let’s look at the car wash example I referenced earlier.

Maybe the gas station doesn’t have a car wash on site…

How easy would it be to partner with a car wash to provide coupons or vouchers to everyone who bought at least 5 gallons of gas to get a car wash from a nearby location?

The car wash company gets the benefit of exposure to a huge number of customers driven by the traffic generated by the cheap gas, and the gas station owner (should) get compensated for each redeemed and/or distributed voucher.

One more time for those who don’t run storefronts…

Let’s say I’m in a customer’s home providing a discounted repair, and I notice that they need to have their flooring replaced or repaired… why would I not partner with a flooring company to distribute vouchers, flyers, etc. to everyone I see for my discounted repair?

Bottom line? I’m not a big advocate for offering discounts, period.

In fact, there are many other ways to get the same outcome (more sales, leads, or customers) without discounting…but I recognize that there are circumstances or industries where it is more difficult to avoid entirely.

Customers will pay twice the price if they believe they’re getting four times the value.

If you choose to discount, follow the steps above so we can hear hero anthems (Superman, Wonder Woman, Indiana Jones) instead of horror music when we look at your bottom line.