Why Discounting Sends Clients To Your Competition

Seven fire trucks.
Six hours of belching smoke.
Scurrying firemen scurrying around, desperate to contain, and eventually outfox the flames.

And what happens right after your local mall has had a huge fire?

Why a fire-sale, of course

On Sunday morning, in the middle of the year, it was like being in the midst of the run-up to Christmas.
Cars jammed the parking lot.
Scores of bargain-hunters descended on the stores.
To prevent a riot, and a stampede, several stores literally shut their doors.

All this chaos over a discount

But one look at the discounted goods would tell you just why there was a discount.

Shoes were soiled.
Bags covered with soot.
Clothes had the distinct ‘fire-look' about them.

So what's wrong with your products or services?

Nothing, you say. So why on earth are you planning to give a discount?

So what if the client asks for a discount? Have you had a fire? Are your products/services sub-standard in any way?

Now no one has to tell you that discounting is plain stupidity

Because the moment you discount, you're cutting your own throat. You're in effect saying your goods and services are not worth the price on the sticker.

And it's stupidity because most clients are not even looking for a discount. You just happen to be doling it out, so they're merrily taking the discount.

What the client really wants is value for money. Value for money can be quite easily created by ‘unbundling' and ‘bonuses‘.

What's really scary about discounts isn't the ‘dumbness' of it all

The fact that you lose money on every transaction, is really your business. The scary part is the brand you're creating.

Yes, brand. As in branding. As in permanent logo in customer's brain. And that discounting literally drives your customers to the competition.

So let's pick on a couple of wine brands in your local supermarket

Let's say Brand A is $20, but regularly discounts their product to $12. Then let's pick on Brand B. Which is priced at $20. And the price never seems to come down.

In your brain, what's the price of Brand A?

And what's the price of Brand B?

It might well be $20, but your tendency is only to buy Brand A, when it comes down to $12, because otherwise there's an inherent pain of loss in our brains. We can't bring ourselves to pay $20 for what we perceive to be $12.

But surely I'm out of touch with the wine-industry, you think.

Surely the wine bottle needs to get out of the winery, and into the um…hands of customers.

Well here are some sad, but true facts all the way from wine country in France.

Take two wineries in the Bordeaux district of France. Alfred Tesseron's wine is now fetching $60 a bottle. In the year 2000 (which was wine of spectacular vintage), he got just $15 a bottle.

In the year 2004, his wine was earning $30 a bottle. And Alfred hasn't even started to bottle this year's wine, and is already getting 400% what he was getting seven years ago.

Just an hour's drive away in the nearby village of Margueron, gloom and doom abounds. Due to a glut of Bordeaux in the market, the cheaper wine isn't moving at all. You'd think discounting and cheapness would sell. And yet, brands such as Chateau Cheval Blanc, and Chateau Lafite-Rothschild from the 2005 vintage, are flying off the shelves at $700 a bottle, while the discount wine companies struggle.

You see what's happening in Bordeaux?

Well, it's happening in your home town too. You think that discounts are what customers really want. And so you discount.

But inevitably you get stuck in a vicious cycle that's impossible to loop out of.

And all the while, the customers are lapping up your products only when you offer a discount, and go elsewhere and get their products at full price at the competition.

If your real aim is to create value, there are tons of methods that will cause your customers to buy.

Discounting is not one of them.

Which of course, brings us to a tricky question.

Should you never discount at all?

What about the one-off discount here and there? Does that hurt?

There's no such thing as never. I'd always advise you to give a bonus instead of a discount, because bonuses have a perceived value that don't require you to undercut your products and services.

But yes, under certain strategic conditions, you may still need to discount e.g. You want to fill a training room with clients (and not have an empty room), then you may find it prudent to discount (if only for a fixed period). You may be keen to create a sample of your offering, knowing fully well that the back-end sales will make up for it, then a discount is a clearly strategic decision.

But then, how does that differ from say: Getting a client?

Shouldn't you be able to give a discount to get a client's business.

You could.

But you have to be very careful about how you do go about structuring a discount. If you're indeed compelled to give a discount, make sure the client knows the reason–and that the discount is a one-off.

A fire-sale may be fine for a one-off

But if you have a fire-sale on a constant basis, then seven fire trucks, with scurrying firemen won't be able to save your business.

That rosy glow you see on the horizon–it's not a stunning sunset.

It's just another idiotic ‘discount' business going up in flames.

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