The Danger of Frequent and Predictable Discounts When your customer base gets accustomed to discounts, they do two things that hurt your bottom line.
By Jonathan Long •
Opinions expressed by Entrepreneur contributors are their own.
Everyone loves a sale or a discount -- after all, saving money just feels good. If you sit back and think about it for a minute you can probably recall the last time you took advantage of a special offer to save a few bucks. There is also a good chance that the discount was responsible for your purchase.
Discounts can be a great way to lure in customers that are on the fence or reel back in customers that haven't engaged with your business in a while. They can also be used to effectively kick off a new product line or season. Discounts work, but they can be bad for business when they become too frequent, to the point that they are easily predictable.
Related: Why Discounts Are a Trick
When your customer base gets accustomed to discounts, they do two things that hurt your bottom line.
1. Customers expect the discounts to keep coming.
When your customers notice a pattern they begin to expect the discount. I'll give you a perfect example: Sirius XM sends me a free three-month trial offer in the mail just as my current trial is ending. It happens every quarter, and has happened for the past few years.
I love satellite radio, but why in the world would I sign up when a brand new three-month trial is waiting in my mailbox as the current trial is ending. These aren't limited trials either -- the entire lineup is available. Sirius XM has completely killed its value, and I can't be the only person who is receiving this never-ending offer.
Hint to Sirius XM: Stop sending me these trials like clockwork and I will gladly subscribe to your service. It's a great product and I see value in subscribing, but they are blowing it by being far too generous with predictable discounts.
Offering a three-month trial is great -- it gets the consumer hooked on the service. Once the trial is over the company should be dripping out email and direct mail teasers. Something along the lines of, "Don't you miss your satellite radio on your work commute?" would have roped me right back in and converted me into a paying customer.
Related: The Psychology of Discounts and Deals (Motiongraphic)
2. Customers wait for discounts to make a purchase.
When your special offers and discounts become predictable your customers are only going to make purchases when there is a discount available. It isn't healthy when sales flat-line and only spike when a discount is available.
GoDaddy is a perfect example of this. I can't tell you the last time I have paid more than 99 cents for a domain from GoDaddy. Actually, I can't recall the last time I ever purchased anything from GoDaddy over the past five years at full retail price.
I receive multiple coupons in my email inbox from the company every week. Now, GoDaddy is hoping to secure new business with one of its special offers and then sell multiple products down the line. With hosting and domain renewals, the lifetime value of an average customer has to justify the constant discounts to some degree.
But what about the customers such as myself that only use GoDaddy as a domain registrar and don't utilize any of its other offerings? Even when it comes time to renew our domains there is always a discount available. GoDaddy is a huge company and are obviously doing well -- but the same approach would absolutely bury a small business.
Discounts are part of business -- align them with your marketing and advertising goals, but don't offer them too frequently and definitely don't establish a predictable pattern.
Related: Measure the Success of a Marketing Campaign Through the Product and the Brand
