Earning Customer Loyalty With a Discount Is Not the Same as Competing on Price Cutting prices to stay in business is fatal but giving a good customer a break is just smart marketing.

By William Bauer

Opinions expressed by Entrepreneur contributors are their own.

Jim Watson | Getty Images

At dinner the other night, Joseph Natale, a formidable force in the auto dealership world, asked me to go for an impromptu liquor run to a store he is familiar with in his neighborhood. He predicted confidently that buying a couple of Alexander Valley Cab Sauvignons totaling $500 would garner us a free bottle of something.

Twenty minutes later, I returned with wine in hand but without the extra bottle he had anticipated. Now, don't get me wrong, Mr. Natale is by no means a cheap man, but a savvy one and, yes, there is a tenuous line between the two. However, he was disappointed to say the least, retorting, "I never ask for discounts…I shouldn't have to."

And I don't blame him one bit. There has been a paradigmatic shift towards customer-centricity, particularly in highly globalized, tremendously transparent market in which access to information has become the empowering agent of change.

Like many consumer product retailers, liquor stores compete on a handful of variables: selection, convenience (geographical proximity and hours of operation), price and service. This liquor store is not the only act in town, nor did it have a comprehensive assortment. It just happened to be a few blocks closer to Mr. Natale's house and I did not want to miss out on the dinner conversation for too long.

There was no compelling reason to shop there and, unfortunately, businesses big and small fall prey to underestimaing the potential lifetime value of customers. Providing a discount or throwing in a free bottle should not be viewed as competing on price. That competitive strategy is an unsustainable slippery slope. Rather, the element of surprise coupled with the token of gratitude should be perceived as vital instruments of customer value that are within retailers' marketing arsenals.

Related: 5 Ways to Grow the Value of Each of Your Customers

As a small business owner, consumers' freedom of choice scares me. At a recent vendor meeting with the account executives at Axis Promotions, I purposefully brought no products with me. In fact, I began the conversation with acknowledging that our product is largely homogenous and frankly, we can't leverage the economies of scale that bigger name brand leather companies have to deliver exceptional prices. We have over 100 direct competitors, and despite being able to reach a far wider market than the aforementioned small town liquor store, it is nevertheless an overwhelming reality.

Related: 10 Uncomfortable Deeds That Will Make You More Successful

At ROYCE, we strive to showcase price-quality ratio from the onset, and in all honesty, there is not a whole lot of margin in doing that, as opposed to some brands that create superficially high prices that provide them with cushion to utilize mark down price promotions and create gift-with-purchase opportunities. It's an outlook my parents ingrained me with from an early age, citing the importance of business integrity, even if it feels like an albatross at times due to sacrificed profitability.

Related: Use Being Different to Your Competitive Advantage

However, where we can compete is on reliability, like personally driving a customer's order to a last minute event at the Barclays Center after overnighting the product from our workshop at my cost. Yet, I still throw in a discount, whether it's not charging for delivery or monogramming fees or gift-wrapping. I realize how fortunate we are to have their business, particularly because of the sheer plethora of vendors at their disposal. That's simply the type of "discount" extended to them whether it's a seemingly insignificant three-piece writing padholder order or a 500-unit backpack order. I throw discount in quotations marks because viewing it as a means of sustaining price competitiveness would be erroneous.

Rather, it is a sign of good faith, and one that I would never expect our customer to explicitly ask for, no matter their purchasing frequency or value. So, Mr. Natale, expect to leave our shop with far more than you came for.

Wavy Line
William Bauer

Managing Director of ROYCE New York

William Bauer is the managing director of ROYCE, a handcrafted American accessories brand based in New York City. His small-business marketing and entrepreneurial acumen have been featured in The New York Times, Entrepreneur, BBC, CNN Money, and other prominent publications.

Editor's Pick

A Leader's Most Powerful Tool Is Executive Capital. Here's What It Is — and How to Earn It.
Lock
One Man's Casual Side Hustle Became an International Phenomenon — And It's on Track to See $15 Million in Revenue This Year
Lock
3 Reasons to Keep Posting on LinkedIn, Even If Nobody Is Engaging With You
Why a Strong Chief Financial Officer Is Crucial for Your Franchise — and What to Look for When Hiring One

Related Topics

Business News

More Americans Are Retiring Abroad, Without a Massive Nest Egg — Here's How They Made the Leap

About 450,000 people received their social security benefits outside the U.S. at the end of 2021, up from 307,000 in 2008, according to the Social Security Administration.

Business News

Woman Ties the Knot at White Castle Almost 30 Years After the Chain Gave Her Free Food as a Homeless Teen

Jamie West was just 12 years old when she ran away from the foster care system.

Business News

Lululemon Employees Say They Were Fired for Trying to Stop Shoplifters

Two Georgia women say Lululemon fired them without severance for trying to get thieves out of the store.

Business News

New York Lawyer Uses ChatGPT to Create Legal Brief, Cites 6 'Bogus' Cases: 'The Court Is Presented With an Unprecedented Circumstance'

The lawyer, who has 30 years of experience, said it was the first time he used the tool for "research" and was "unaware of the possibility that its content could be false."

Business News

The Virgin Islands Want to Serve Elon Musk a Subpoena, But They Can't Find Him

Government officials would like to talk to Tesla's owner as part of an investigation into the Jeffrey Epstein case.