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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

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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.

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.

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