Be careful with discount pricing

Companies use discount pricing for many reasons: To stimulate short- term sales; to match a competitor's price reductions; to get high-traffic display space at a major retailer.

But before you slash your price, consider the impact this could have on customer loyalty. Wander down a supermarket soft drink aisle, and you're likely to notice Coke or Pepsi is on sale at a reduced price. These sales have become so common that most consumers either wait for the brand they want to go on sale or buy the competing brand that is on sale.

"The loyalty factor is a very important reason not to compromise pricing or over-use promotional pricing," explains Michael Goodman

Why? If a customer is more loyal to price than to your brand, your brand is vulnerable to pricing moves by your competition, and you may be forced to cut your price—and your margins—in order to maintain your market position. What are the alternatives?

  • Offer a bonus pack. Use creative packaging to demonstrate the additional benefit the consumer is receiving.
  • Offer a free premium like McDonald's does with the Happy Meal. Offer a purchase with purchase. "Buy a designer label fragrance at the regular price, and get a $59 silk scarf for just $9 more."
  • Offer a free month of services for a yearly retainer.

The Po!nt: There are many ways to earn customer loyalty and increase sales. Discount pricing is but one, and it can backfire in the long term.

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