You meet the person of your dreams. It’s a whirlwind romance. You travel to places you never thought you’d ever get to visit and best of all, you’re doing it with them. You eat great food, drink great wine and think to yourself, “This is it. They’re my soulmate. The one.” Then you get home and you realise they just paid full price for a Dominos pizza on a Tuesday night. Sack. Them. Off.
Okay, you might not be binning your loved one for missing out on a discount but the common dislike of paying full whack for something you’ve experienced before for a discount is a real thing. It’s often called price anchoring or loss aversion but we call it The Domino Effect.
We’ve all been there. When you start selling your services or when you offer a new service or product, you’ll want to try out a bunch of ideas to rack up new business. Unfortunately, one of the most commonly pitched ideas at this stage is also one of the most damaging… the discount.
This discount could affect your brand positioning as, with every discount offered, your target market may begin to think of your brand as a discount brand. This perception can lead people to think you offer a service that doesn’t deserve to be billed out at full price. It can make people more inclined to ask for a discount at the start of a project or more likely to choose between you and other brands based purely on price – can you think of anything worse?! But even if you don’t offer enough discounts for your entire brand to take some positioning damage, on an individual customer level, you’ll still likely be hit by the Domino effect.
Even with more caveats than life insurance for your skydiving nan, offering a discount can hurt your brand and damage customer loyalty. When you sell your service for a discount, that becomes your customer’s reference point, their anchor. Studies, such as the groundbreaking research by Tversky and Kahneman, have shown that people rely heavily on initial information when making judgments. Once you’re anchored to a discounted price, paying full price feels like a betrayal. Despite having once given them a deal, all they see is you’ve ramped up the prices to rob them blind.
“But this is the actual price. You’ve actually won by getting a great discount at least once but now it’s full price time”. Look mate, I get it. But unfortunately, we humans are wired in a way that makes us less receptive to gains than we are to losses. If we pay a discounted rate for a service and then next time pay a higher price, we’ll see that as a loss, rather than a retrospective gain. That original discounted price is our reference price and everything else is a gain or (gasp!) a loss.
But it’s not just existing customers upset, you’ll also be hitting your brand with some unsavoury market positioning damage. If your offer too many discounts, you’ll be seen as a discount brand.
Unfortunately, the discount dilemma doesn’t stop there. Not only will your customer base hate you for driving up your prices (to your actual normal, usual pricing?!) but they’re also now more likely to value you less. Customers will think “If they can afford to charge me 30% less than they’re suggesting originally, maybe their service is worth less overall.” Your value proposition becomes muddled and suddenly you’re scrambling to justify your normal pricing.
Couple together all of these issues and you quickly realise that that cheeky 25% off for new customers is costing you more money than it’s probably ever going to make you. You might get lucky with a customer who fully understands the concept of a one-time discount and will always respect the fact that the value you offer is worth every penny you suggest it is. But… come on.
So instead of trying to construct that perfect discount, hone your value proposition and look at delivering a service that makes your customers shout about the effects or that service more than the price. Content, strategy and execution should be your blocks to build brand loyalty, not a coupon or special code.
(PIZZA50 usually works a treat though…)