It used to be so simple, so predictable. Just as night follows day, we followed a well-worn retail pattern: September back-to-school sales, then Columbus Day sales, then Halloween Sales, a pause for Thanksgiving, and then (finally!) Christmas and after Christmas sales. You always knew what kind of discount you could expect to find depending on where you were in the retail calendar. So how do you handle the news that some retailers have been offering Christmas discounts since the first week of September? Does it strike you as downright unnatural or have you decided not to look this particular gift horse in the mouth?
Setting your holiday shopping plans to the side, have you also noticed that more and more law firms are now offering discounts — regardless of the season? According to a recent report, London’s “Magic Circle” firms have reduced their rates by a third as they discount in response to intensified competition. Not surprisingly, the clients quoted in the article seem pleased with this outcome. But is it a sustainable path for any business?
Steve McKee writes in BusinessWeek that unless the discounting is done extremely carefully, it almost always will have a deleterious effect. Here’s how he describes the impact of discounts:
Discounting destroys brand equity, hamstrings investment in innovation, and zaps profitability for companies and their stakeholders.
For companies determined to discount, McKee suggests that they take the following measures:
- Discount briefly.
- Discount wisely.
- Discount creatively.
McKee ends with the following tough advice for businesses contemplating long-term discounts:
The bottom line: In your customers’ eyes, your product is either worth regular price or it’s not. In tough times like these that may be a more difficult case to make, but if you’re not winning the value equation in their eyes you should focus on finding a way to meet their needs without reflexively taking a percentage off the top. If you do choose to incorporate discounting into your strategy, it must appear sensible and smart, not irrational or a result of panic.
People understand that prices are a market mechanism. If you start playing the discount card too much, you’re sending a signal that you don’t believe your product or service is worth it. And if you don’t believe it, who will?
[Hat tip to Nancy Myrland for pointing out this article by Steve McKee.]
[Photo Credit: rcolonna]