Transcripts
Welcome to Live With The Pricing Lady.
Speaker:I'm Janene, your hostess.
Speaker:This show is all about helping you build a sustainably profitable
Speaker:business while making an unbelievable impact on your world.
Speaker:Learn from my 20 years of experience and from my guests as we discuss their pricing
Speaker:challenges, failures, and successes.
Speaker:Pricing is a way of being or behaving in your business.
Speaker:My mission is to help you confidently charge for the value you deliver.
Speaker:Pricing is either hurting or helping your business.
Speaker:Let's make sure it's helping you reach your dreams.
Speaker:In this episode of Live with The Pricing Lady, we're talking about discounts and
Speaker:promotions and whether or not they're the right thing for your business.
Speaker:Sit back, relax and enjoy the episode.
Speaker:Today, we're talking about whether or not discounts and promotions are
Speaker:effective when it comes to attracting and retaining customers in your business.
Speaker:Now the short answer to this question is it depends.
Speaker:I know you may not like that I say that, but it is absolutely the truth
Speaker:because discounts and promotions are not appropriate for all businesses.
Speaker:This is one of those things.
Speaker:Once again, in a pricing context that comes down to you, making a strategic
Speaker:decision about the kind of business that you want, and what's going to
Speaker:work most effectively when it comes to your pricing strategy to help
Speaker:you reach your business objectives.
Speaker:We're going to take a look at this in a few parts.
Speaker:First, we'll look at the pros and cons of discounts and promotions.
Speaker:And then we'll talk about the types of businesses that could
Speaker:use them more effectively.
Speaker:And those that should shy away from them, or definitely not use them at all.
Speaker:And then I want to talk to you about what I see, especially in the
Speaker:service industry, your coaches, your wellness therapist, your freelancers.
Speaker:Your consultants even know what they get wrong when it comes
Speaker:to discounts and promotions.
Speaker:So let's get stuck right in.
Speaker:, as I said, we're going to start by understanding what are the pros and
Speaker:cons of discounts and promotions.
Speaker:Maybe I should be clear.
Speaker:I think discounts are fairly clear.
Speaker:You offer a discount, you're lowering the price.
Speaker:Promotions are usually tied to you doing something in order to get the
Speaker:promotion like an early bird offer.
Speaker:When you buy earlier, you get a better price, right?
Speaker:I want to be clear discounts and promotions, they can seem
Speaker:like similar things, but there is a slight difference there.
Speaker:what are the pros of using discounts and promotions?
Speaker:first of all, one of the major reasons that businesses use them is to increase
Speaker:their volume in the short term so they can get, they believe with lower
Speaker:prices that they can get more sales.
Speaker:Yeah.
Speaker:And a lot of times people are actually trying to be more profitable in the
Speaker:short term as well, but they misuse this and we'll talk about that more later,
Speaker:but they misuse their discounts and promotions thinking I'll discount now.
Speaker:I'll get more people to buy and I'll make more money.
Speaker:But as you'll hear later, that often doesn't work so well.
Speaker:It can help you to increase volume short term.
Speaker:And in some cases, although not very often, it can also
Speaker:help you earn more profit.
Speaker:Well, take a look at that later.
Speaker:It can help you to attract new customers.
Speaker:So if your discount or promotion is targeted towards people who
Speaker:have never ordered from you, then that would be a great way.
Speaker:If they're interested in discounts and promotions on that thing, for them to
Speaker:be attracted, to buy from you, right.
Speaker:It can help improve your cashflow.
Speaker:So sometimes I'll advise customers.
Speaker:Okay.
Speaker:If you want to pull in more cash before the end of the.
Speaker:Year, make a special offer.
Speaker:So if you want to do that and people are interested in what you have
Speaker:to offer, and if that promotion is attracted to them, then it may
Speaker:actually bring you additional cashflow.
Speaker:You might not have otherwise had.
Speaker:Promotions, especially can create brand awareness.
Speaker:So of course, as a promotion, you usually make some sort of communication.
Speaker:And if you're communicating, not just to your existing clientele, but
Speaker:to attract new customers, then that can create a lot of brand awareness.
Speaker:One of the biggest special promotions ever, is the McDonald's happy meal.
Speaker:Right.
Speaker:That is a promotion.
Speaker:You get a bundled offer with a little goodie inside for a special price.
Speaker:It's precisely what a special promotion is.
Speaker:They're doing that in part to create brand awareness, but
Speaker:also because they know that.
Speaker:If mom and dad bring their kid to get a happy meal, chances are
Speaker:they're going to buy something else for themselves along with it.
Speaker:They ended up selling more.
Speaker:They can create brand awareness.
Speaker:It can also create additional sales.
Speaker:Last promotions and loyalty discounts can help you retain customers.
Speaker:It's absolutely true, depending on the type of business.
Speaker:So here in Switzerland, we have the co-op and they have a, every few months
Speaker:they have a special promotion where you collect points on pride, the super Puente.
Speaker:Where you collect points and then you can buy things when you have so many
Speaker:points at a reduced price, right?
Speaker:So this is the help people to be more loyal to them because in order to
Speaker:collect points, they have to shop there.
Speaker:That's one way in which a special offer can help you with.
Speaker:Retaining customers or customer loyalty.
Speaker:The problem with the pros is this is not the case in all types of businesses.
Speaker:Before we look at where it's most effective.
Speaker:Let's also talk about the cons of discounts with special promotions.
Speaker:Now probably the number one con or downside to these is that.
Speaker:They can he rode your profits?
Speaker:That's why you need to be very strategic about when you discount
Speaker:or when you make special promotions.
Speaker:What your business objective is behind it.
Speaker:And then you want a monitor that sort of is not working as you plan.
Speaker:You can adjust because the last thing you want is a special promotion or
Speaker:a discount that erodes profit and doesn't bring any added value for you.
Speaker:They can hurt your brand.
Speaker:So special offers and promotions are discounting the price, which
Speaker:is effectively saying to customers that it's worth less than you
Speaker:said with the original price.
Speaker:So it can hurt brand perception and especially.
Speaker:In markets or industries where people there.
Speaker:You know, like in luxury brands, especially discounts and promotions
Speaker:are rarely if ever effective.
Speaker:Or definitely mostly not used at all because of the negative
Speaker:impact it has on brand perception.
Speaker:That's just, yeah, the way it is now, if you see electuary brand starting
Speaker:to offer them, that probably means that they're trying to shift who
Speaker:the target market is, which is a different objective for their business.
Speaker:And that would be reflected in the strategy there.
Speaker:Your discounts and promotions can condition customers to certain behaviors.
Speaker:So for example, if you always offer discounts on what you offer on black
Speaker:Friday, then people may wait until black Friday, each year to make a
Speaker:purchase from you because they know that they will get a better price.
Speaker:And there was something that they don't need to buy at other times of the year.
Speaker:Then why wouldn't they?
Speaker:It would be a no brainer just.
Speaker:Right.
Speaker:Right.
Speaker:So like a lot of electronics on cyber Monday.
Speaker:People wait until cyber Monday to purchase such things because they
Speaker:know they can get a much better deal.
Speaker:So you have to be careful about how, what you do, conditions, the customers
Speaker:to behave in a certain way, because it can be not so good for you, but it can
Speaker:also not be so good for them as well.
Speaker:Another con is that discounts and promotions are very short-term focused.
Speaker:So at the very beginning, I said, one of the pros was to
Speaker:increase volume in the short term.
Speaker:And it's true.
Speaker:Let's say you decide to offer a discount.
Speaker:It might increase your volume, but probably that volume
Speaker:increase will be temporary.
Speaker:Right?
Speaker:You might get a small peak and then it will flatten out again.
Speaker:And if you want to do something that's more sustainable than
Speaker:discounts and promotions may not be the most effective way to do that.
Speaker:Depends on what your objective is for offering that discount or promotion.
Speaker:And the last con is it can have a negative impact on the competitive environment.
Speaker:So, of course, if you're in a really cutthroat environment where your
Speaker:customers are super price sensitive.
Speaker:And you offer a discount, your competitors might offer a discount
Speaker:and then you have to counter.
Speaker:And then all of a sudden you end up in a price war.
Speaker:And that is good to no one contrary to popular belief.
Speaker:Price wars are not even good for customers because in the end they will
Speaker:have less choice because businesses will go out of business because
Speaker:they can't make enough money and compete anymore in the marketplace.
Speaker:That is not only not good for them, but also not for the customers.
Speaker:What's important when it comes to thinking about discounts and promotions for your
Speaker:business is to be clever about what you choose to do, how and when as well
Speaker:as clear about why you are doing it.
Speaker:This is super important.
Speaker:If there's anything you remember from this episode, I want you to remember
Speaker:that every discount and or promotion that you offer should have a very
Speaker:specific business purpose behind it.
Speaker:Now, before we get into what I see that people get wrong.
Speaker:I said, I would share with you.
Speaker:Which industries.
Speaker:Discounts and promotions work better in and which one should
Speaker:either shy away from it or probably will use them hardly at all.
Speaker:When it comes to the businesses where these can be very effective.
Speaker:We're generally going to be looking at retail and consumer.
Speaker:One of the things that I talk about a lot.
Speaker:And share with people is what most of us are familiar with and know about
Speaker:pricing comes from being a consumer.
Speaker:What we see in the consumer industry is lots of discounts
Speaker:and special offers and deals.
Speaker:And we're just bombarded with them constantly every day as a consumer, right.
Speaker:What happens is if that's all you have learned about pricing is from
Speaker:being a consumer and you take those tactics and strategies and you try to
Speaker:bring them into a business that isn't retailing and simmer, and you try to
Speaker:use those tactics and strategies in the, in a different kind of business.
Speaker:They aren't effective.
Speaker:They don't work.
Speaker:And that's one thing that people get wrong.
Speaker:So, These types of tactics and strategies work very well or
Speaker:better in retail in e-commerce.
Speaker:And consumer goods.
Speaker:And in services that are not knowledge based.
Speaker:So let's say like everyday services.
Speaker:Like haircuts salons, spas, you know, things like that,
Speaker:as opposed to your coaches and consultants and things like that.
Speaker:So those are the areas that are going to be using discounts
Speaker:and promotions more heavily.
Speaker:Now, one of the reason, at least for the first three for your retail, your
Speaker:e-commerce and your consumer goods.
Speaker:The main reason that they are offering all of these special
Speaker:promotions is to move inventory.
Speaker:And create customer loyalty.
Speaker:Or both.
Speaker:Right?
Speaker:So if you think of the clothing industry, we have seasons and they're
Speaker:trying to shift out the old stuff so they can bring in the new stuff.
Speaker:And that is the cycle that they go through.
Speaker:Now take the strategy.
Speaker:That's based on shifting inventory and you apply that to a coaching
Speaker:business, for example, or a freelance business is kind of weird, right?
Speaker:You're not shifting inventory.
Speaker:Why would you do that?
Speaker:That's a good thing for you to reflect upon.
Speaker:Now the type of businesses where you should either not use them
Speaker:at all, or be very cautious about using them are luxury goods.
Speaker:Niche markets.
Speaker:So let's say you've created a handbag out of a new revolutionary material.
Speaker:That's pretty niche.
Speaker:I'm not sure that discounting your offer is the right way to get into the market.
Speaker:You have to think about what that strategy means in the short and the
Speaker:medium and the long-term low, super low margin businesses could be pretty
Speaker:hard to be able to offer promotions because your margins are so low.
Speaker:It will just erode your profits.
Speaker:Professional services like consultants and coaches or a B to B businesses.
Speaker:It's pretty difficult to do promotions in those type of businesses, although
Speaker:I'm sure there are businesses out there in those areas that do, but I
Speaker:was be very cautious about doing it.
Speaker:In those types of businesses, you might use discounting.
Speaker:But I'm going to talk in a moment a little bit more about different
Speaker:something different that you might consider doing, as opposed to always
Speaker:just turning towards offering a discount.
Speaker:Also new and growing businesses should be really careful about
Speaker:discounts or promotions because of the impact it has on profitability.
Speaker:Now this doesn't mean you can't use a penetration strategy
Speaker:and go in at a low price.
Speaker:And quickly gain volume and raise your price.
Speaker:But most people forget the second step of that, which is quickly
Speaker:raise your price because they don't gain the volume that they think.
Speaker:And then the strategy becomes ineffective very quickly.
Speaker:But we're not talking about strategy today.
Speaker:I have another episode on that and I'll put a link in the show
Speaker:notes for this, so that if you want to check that out, you can.
Speaker:But I wanted to say for new and growing businesses, discounting and
Speaker:promotional strategies can really backfire because of the impact
Speaker:they have on your profitability.
Speaker:But also because of the impact they have on the perception of value.
Speaker:Those are the types of businesses that might use it, versus those who might not.
Speaker:Now let's turn our attention to what it is that I see you guys doing wrong.
Speaker:I'm going to focus specifically on your coaches, your consultants,
Speaker:wellness therapists, freelancers.
Speaker:But a lot of these apply also to your software and your
Speaker:product based businesses.
Speaker:Don't think you are off the hook.
Speaker:So the first thing that I see people doing wrong is they rely on discounts.
Speaker:Because they feel uncertain or nervous, or they don't believe in the value
Speaker:of what their offer and they end up undervaluing themselves and then they
Speaker:rely on discounts to make up for that inadequacy that they feel let's say.
Speaker:So too much can lead your clients to perceive that you don't believe the value.
Speaker:And if you don't believe the value and neither will they, and
Speaker:that is a really important point.
Speaker:How have I seen this?
Speaker:I've seen this.
Speaker:People offering what I call preemptive discounts.
Speaker:So they offer discounts just because they feel nervous that the
Speaker:customer won't accept the price.
Speaker:And this is rarely if ever a good reason to offer a discount.
Speaker:You need to be more thoughtful and strategic about what you offer.
Speaker:And instead of doing it out of fear, So the second thing or challenge that people
Speaker:have is they have no real clear business purpose behind why they're offering
Speaker:this discount or special promotion.
Speaker:So years ago I had a client and she came to me with like a year plan for all
Speaker:the promotions she was going to offer.
Speaker:And I was quite surprised by that because I didn't understand where it
Speaker:was coming from when we discussed it.
Speaker:She said to me, well, that's what I see everybody else doing.
Speaker:So I just thought that's what I was supposed to do.
Speaker:Yeah.
Speaker:Right.
Speaker:So this goes back to that.
Speaker:What you see as a consumer.
Speaker:And also what you see, you know, even other people in your business.
Speaker:Are in your industry may be doing something.
Speaker:But that doesn't necessarily mean it's the right thing for you.
Speaker:You need to look at it more strategically.
Speaker:That's what we did together.
Speaker:We had a talk about.
Speaker:You know, what w what were the objectives behind these different special offers
Speaker:shoes making, and what needed to be done and what was really not necessary.
Speaker:And then she came back with a different plan with a lot less.
Speaker:A lot flavor special offers in there, but she felt more confident about what
Speaker:she was offering because she understood the business purpose behind each one.
Speaker:And that is also very important because you want to be able, somebody asked you,
Speaker:okay, well, you told me it was this price.
Speaker:Why I'm, why I'm grateful to have a discounted price, but you know, why.
Speaker:Why is that, then you'd be able to help them to understand that value.
Speaker:So you really want to make sure you have a real good business purpose behind it.
Speaker:It can be, want to increase profit.
Speaker:You want to attract new customers.
Speaker:You want to increase your volume.
Speaker:But by having that business purpose, then you can do the next thing.
Speaker:Which is make sure you do the math.
Speaker:Now most people will not do the math to understand.
Speaker:Whether or not, this will really help them achieve their objective.
Speaker:And what it will take to get there.
Speaker:So let me give you an example.
Speaker:This example is a product based business, but it is very similar
Speaker:for a service-based business.
Speaker:So if you have a product that has a gross profit of 40%, that means,
Speaker:for example, the price is 100.
Speaker:The cost to manufacture are 60.
Speaker:So you have 40% gross profit or gross margin.
Speaker:If you have that sort of situation, let's say you think to yourself,
Speaker:I'm going to lower my price by 10%.
Speaker:And I'm going to sell more.
Speaker:And therefore I'm going to make more money.
Speaker:This is one of the great fallacies pricing.
Speaker:So the question that I want you to ask yourself is if I lower the
Speaker:price by 10%, how much more do I have to sell in order to break?
Speaker:Even on gross profit.
Speaker:So if you had this product of a hundred and let's say you have a hundred,
Speaker:you're going to sell 10 of them.
Speaker:Right.
Speaker:So that would be a thousand dollars.
Speaker:But if instead you sell it for 90.
Speaker:In order to still hit a thousand, you're going to have to sell more
Speaker:at 90 than you would at a hundred.
Speaker:Right.
Speaker:Well, the answer to the question is if your product is a gross profit of
Speaker:40%, and you want to decrease the price by 10%, you have to sell 30% more.
Speaker:Units.
Speaker:Before you start to break even on profit, not earn more money, but break even.
Speaker:And 30% is a whole lot.
Speaker:It's a whole lot.
Speaker:Most people don't do the math.
Speaker:So they don't understand that, which is why they offer the discount and then
Speaker:they don't end up making more money.
Speaker:So it's important that you do the math and understand.
Speaker:What it's going to take in order for you to hit that objective.
Speaker:That's behind the reason for you making that offer.
Speaker:If it's to get 10 new clients.
Speaker:And you offer that promotion and you only get six new clients, then
Speaker:you may choose to do something else.
Speaker:Next time.
Speaker:Because it wasn't effective this time, or you may choose to handle that.
Speaker:Discount or promotion differently.
Speaker:That's the kind of thinking that I want you to get into.
Speaker:Another thing that people do is they don't have any real clear
Speaker:boundaries when it comes to their discounts and special promotions.
Speaker:So this can come in two ways, either boundaries for themselves.
Speaker:They're not clear about under what conditions they'll
Speaker:offer certain discounts and.
Speaker:Or when you know what things customers have to do in order
Speaker:to get a certain level of price.
Speaker:And, or they have those, but then they kind of throw them away when
Speaker:customer, when they either need more business or when they feel nervous.
Speaker:Or when they want to be nice.
Speaker:Right.
Speaker:You need to have clear boundaries for both yourself and your customers so
Speaker:that you are doing the right things at the right time, in the right way.
Speaker:And that does require some effort, but it will help you
Speaker:protect the value of your offer.
Speaker:And your profitability.
Speaker:Here's one of my favorite things actually before, let me
Speaker:say, Nope, we'll do that one.
Speaker:So one of the things that people can do or should do more of, especially
Speaker:in services is instead of offering discounts, they should adjust the value.
Speaker:And that means either taking things out of the offer.
Speaker:So the value is the value is adjusted and therefore it justifies a sh
Speaker:a smaller price or a lower price.
Speaker:Or you can add things in, you keep the price the same, add in a little
Speaker:something that's easy for you and maybe even mutually beneficial,
Speaker:but is a value to the customer.
Speaker:So they feel like they're getting something, but you
Speaker:are not adjusting your price.
Speaker:I love this tactic and strategy, especially for your
Speaker:coaches and your consultants.
Speaker:Because it allows you to be able to play.
Speaker:On the price side of the price of value scale.
Speaker:Next people are offering too many discounts or special
Speaker:promotions way too often.
Speaker:Now in some businesses, if your customers are customer, if your target customer.
Speaker:He loves getting a discount and that's like part of their, their being right.
Speaker:There are people who buy just because they save.
Speaker:If that's your target customer.
Speaker:Then you're going to use discounts and special offers to attract them.
Speaker:But for most of the type of businesses that are working with me, people who are
Speaker:following me, this is probably not, you.
Speaker:Is it probably, but probably not your customer base.
Speaker:And also this does is two things.
Speaker:It undermines your confidence.
Speaker:It undermines your income stability.
Speaker:And it messes with the value perception of your offer.
Speaker:So please, please.
Speaker:Be very selective about what you're doing when it comes to discounts and promotions.
Speaker:Okay.
Speaker:Last one.
Speaker:The last thing that people get wrong is communication.
Speaker:They don't communicate their discounts and promotions effectively.
Speaker:That can mean that they attract the wrong.
Speaker:Audience, it can mean that customers don't actually understand
Speaker:that they're getting a discount.
Speaker:It can mean that people don't understand that there's a trade
Speaker:off in there that they're giving up some value to get the discount.
Speaker:There are a lot of things you can do and all in the end, what it
Speaker:means is people don't actually value the discount that they're getting.
Speaker:And they start to think that that's the real price and what they're
Speaker:going to be paying in the future.
Speaker:And if that's something that they might buy from you repeatedly, then
Speaker:you're anchoring them to that lower price, which is not going to bode
Speaker:well for you later on down the road.
Speaker:With all of that said, does that mean you shouldn't ever
Speaker:offer discounts and promotions?
Speaker:Of course not.
Speaker:There are a lot of good reasons (to do so), but I want you to be very
Speaker:specific about what you choose to do, why you choose to do it and
Speaker:how you do it in your business.
Speaker:Thank you for listening to this episode of Live with The Pricing Lady, the podcast.
Speaker:If you enjoyed the episode, rate, review, and subscribe to it, then share
Speaker:it with your friends and colleagues.
Speaker:I love hearing back from you listeners.
Speaker:If you've got comments, questions, or topic ideas, go on over to thepricinglady.
Speaker:com and contact me there.
Speaker:Not sure where to start when it comes to improving pricing and profits?
Speaker:At ThePricingLady.
Speaker:com you can download a copy of my Self Assessment Pricing Scorecard.
Speaker:Find out where it's going well and where you can begin improving.
Speaker:Or just simply book a discovery call with me.
Speaker:There we can discuss what's up with pricing in your business and
Speaker:how I might be able to help you.
Speaker:Thanks once again for joining.
Speaker:Remember, pricing can hurt or help your business.
Speaker:Let's make sure it's helping you reach your dreams.
Speaker:See you next time and as always, enjoy pricing.