Discounting – good or bad for business?

By November 23, 2009blog

Subway recently discovered that by lowering the price of their foot-long subs to $5, they got $3 billion worth of extra business (see article). I had two thoughts about this.
1. Good price points/discounts can attract a lot of customers in the short term.
2. Discounting is a crappy way to build a long term business. Once the $5 buzz wears off for Subway, they will be left with the previous volume AND a lower profit margin.

I would rather build a profitable relationship with customers based on the value of what I deliver, than depend on discounting to attract customers. It may take longer, but customer loyalties will last longer and help to create a more profitable business in the long run.

At RegOnline we decided to take a no-haggling, no-discounting approach. We had prospective customers ask us all the time if we would match our competitor’s pricing. Our answer was ALWAYS no. We explained that “We like to treat all of our customers the same great way. No special deals for anyone other than the great deal we offer everyone. ” We would also say “We aren’t the cheapest and we aren’t the most expensive either. But, we do offer the greatest amount of functionality and customer service for the price.”

FullSizePosters.com used to make posters for $4.99 (after a hefty discount from $19.99). They sold a TON of posters, had no time to take care of customers, and made little money on it. Now as the site was reincarnated into PosterBrain.com, they do NO discounting, charge $24.99 for the same poster, are doing half the previous order volume, double the average order size, take great care of customers, and are growing a more profitable business. It was a tough cliff to leap off of to forgo the volume-discounting model.

I believe at the heart of discounting, we are manipulating our customers. Giving them a quick “fix” that becomes the focus (and addiction) of our relationship. I’ve heard the argument that by running specials it gets the word out and introduces more people to the company. This is true. But, then we’ve trained our customers to always look for the deal, rather than be delighted with the real value the company provides.

Is it worth manipulating our customers to buy from us? OR better to patiently grow a loyal following by providing value at a consistently fair price?

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