The Danger of Offering Discounts
By Sharon Bray-McPherson
Discounting is one of the first strategies used by marketers when they want to bring in new customers. Because people love getting something at a lower price, offering a discount seems like the most obvious way to attract customers.
Second to discounting is the practice of offering incentives. "Buy Widget X and get 50% off your next order," or "Buy Widget X, get a second Widget X for free!"
Using either of these strategies can bring new customers to your door. The question is ... will they be loyal customers?
Research from the Harvard Business Review says that customers who buy from you as a result of discounts or incentives are generally less profitable over the long haul, and are more likely to leave you for a competitor.
In a series of experiments collectively called "The Hazards of Hounding," author Paul M. Dholakia points out that "self-determined" customers - ones who came to you because you had what they wanted, and the price you were charging was fair - are the ones you really want to nurture and hang on to.
In fact, in one study of a group of financial services customers, the self-determined customers were twice as profitable and 80% less likely to defect to a competitor!
Most importantly, some of the research indicated that one way to turn off your best customers is to continually offer discounts and incentives aimed at new customers!
Does this mean you should avoid offering discounts or incentives? According to the researchers, no - but keep the following guidelines in mind when planning your marketing campaigns:
Be strategic and judicious about any discounts or incentive offers
Create programs that reward ongoing relationships, not just initial purchases
Build a solid "image" for your company, one that customers can identify and relate to
You may be concerned because your competitors are offering extreme discounts - sometimes below cost - on the same products you sell. But if this research holds true, that kind of deep discounting may spark an initial sale, but it probably won't earn them a valuable, repeat customer.
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About The Author:
Sharon Bray-McPherson is the owner of SBM Distributors,
serving the online community since 1998. For online
business help be sure to visit her website, where you'll
find the cure for "guru" overload.
http://www.go2sbm.com
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