Why discounts do not work?

business advice clients lash education

why groupon is bad

 

While "discount" is a very appealing word for us as customers, it may be a real buzz killer for us as business owners. There is a really funny physiological side to discount: when a client asks for discount and business gives it, the customer starts to think that business did not believe that this particular product or service had value to match the initial price tag.

Why do we give a discount? Most of the time business gives a discount to attract the customer, but oftentimes business owner does not understand that “deal seeker” may not be an ideal client.

Let’s take time and think who is that person who is looking for a deal? It may be a person who either never had tried the service/ product before or someone who doesn’t care about the value, but only looks for a price. While the first type of client may potentially become a long term customer, the second type will walk away as soon as the “deal” is over.

This brings us to offering Groupon Discounts. While it is amazing to get an advance payment for services that will have to be performed in the future, a business should understand, in order to keep the client, it will have to give a deal once again.

Sometimes business owners give discounts because they do not know the actual value of the service they provide or costs involved. For example, they do not factor in the cost of the utilities or cost of the gas they use to get to work, such things as insurance, cell phone bills, cost of the training or future training and so on. Not knowing the associated costs, a business cannot establish the profit margins, thus giving a discount can actually lead to potential losses.

Discounts can be a reason for existing clients to leave the business. When trying to win a new customer business sometimes forgets about existing clients. Think about it, if you are a person who already pays full price for the service or product, and there is someone else who is paying less for the same goods, how would it make you feel? Undervalued and unappreciated.

Instead of offering discounts, a business should offer a package with a better value, for example,  instead of “Get Y off when you buy X”, say: “Buy X and get extra Y”.  The right wording makes a difference. When a business starts to market value, the price becomes secondary.


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