The practice of offering your products or services at a reduced price either by offering a percentage off (save 20%) or flat amount (save $20).
As a rule, we don’t believe in offering discounts. By offering your customers a percent-off or money off of a product or service, they begin to perceive that the lower price should be the actual price.
For example, if you sell a stereo for $500 and three times a year it goes on sale for $400, customers will perceive that the value of that stereo is $400. They won’t want to purchase it at full price. You have lowered the perceived value to your customer.
Discounting can create a spiraling problem. Say you decide to lower your prices because a competitor is selling for less than you. For a moment you are equal or lower than the competitor. If the competitor lowers their price, you are again challenged with lowering your price to keep up. Each time you lose profit. There will always be someone able to sell for lower than you.
On the whole we don’t recommend “being the cheapest” as your pricing strategy.
Add-Value Instead of Discounting
Instead of discounting and lowering the perceived value, offer something instead. Instead of taking $50 off the price, add a $50 value.
For example, if you were a day spa that offered massage services and body care products, instead of discounting your massages by $25, give customers a free basket of products worth $25, so that they get $25 worth of value. And, as a bonus, you may convert some service-only clients to service + product clients when they try and fall in love with your lotions.