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We all love discounts, right? Who doesn’t love a deal?
If we can get something for cheaper, we’re going to find a way. That’s why if you ask someone if they like discounts, they’ll say they love them!
But you might be forgetting about the times where you’ve gotten burned by discounts. Do you remember the last time you bought something full price only to see it get discounted shortly after? How did that make you feel?
In my experience, buying a product only to see it on sale for something cheaper right after leaves me feeling duped. I feel like I wasn’t smart enough to figure out that I should have waited.
Nobody likes feeling like they’re not smart. Yet this is the experience created by you, the product owner, for your loyal customers when you discount.
Why Do People Discount?
Let’s run through a scenario. You launch a product. You make some sales. Then sales die down. You’re sad because you’re not making sales. What happens? You get desperate.
To make some quick money, you discount your product. You find the nearest holiday and slap a label on it. It’s a holiday discount!
Everyone cheers. Lower prices. Cheap products. Great deals. More money for you. Everyone wins!
Except for one person…
The Forgotten Loyal Buyer
The loyal buyer purchased at full price. The loyal buyer bought early as soon as the product was available.
The greatest mistake you can make is forgetting your loyal buyers. They are the lifeblood of your business and the people who will potentially buy the most from you.
Discounts punish the loyal buyer.Discounts tell your loyal customers that they were stupid to buy early. Had they waited for a discount, they could have gotten a better deal.
They didn’t know what the product was really worth.
The True Value of a Product
What is the true value of a product?
The true value of a product is the least amount you’re willing to sell it for.
So in fact, your loyal customers didn’t buy at full price, they bought at an arbitrarily inflated price. Because the true value of your product was the least amount you sold it for. The discounted amount is the true value.
Therefore, when you discount something, you devalue it.
People discount because they get desperate and they want to make some quick money, but discounts have long term ramifications.
You’re Training Your Customers
You’re training your customers not to purchase new things from you when they first come out. When you’ve established that you will discount your prices, people know there’s always going to be a lower price at some point.
You’ve communicated to people that they would be a fool to buy from you early. They should know you’ll eventually get desperate enough to lower the price to make sales later.
You’re training your customers to wait for a discount. They will never buy from you at full price anymore. You’ve already set the true value of your products.
The reason people discount is because they think people won’t buy otherwise. But people will pay full price for certain kinds of brands.
Two Kinds of Brands
There are two kinds of brands:
- Discount Brands
- Premium Brands
You only get to be one of them. You’re either heading toward the discount bin, or you’re increasing the value for your customers. You don’t get to straddle the line. Your business decisions are taking your company in one direction or the other.
Business owners get desperate and think their customers won’t buy without discounts. If you’ve trained them this way, that’s absolutely true. If you decide to change things, you need to understand that the damage is done.
You’ve attracted a certain kind of person and built for yourself a cheap customer base. If you intend to make a change, expect to lose those people, not convert them. The only way out is to rebuild your reputation and brand and attract new customers.
The strange thing is that all of us buy both discounted products and premium products.
We All Give Our Money to Both Kinds of Brands
Even customers of premium products will take advantage of deals and discounts. We all do. Even those of us who appreciate quality will take a cheaper price if there is one. We’re not stupid.
What most business owners fail to understand is that it all comes down to positioning.
There are certain brands we all know will never discount their rates. The most wealthy companies in the world don’t devalue their products. They don’t discount and yet we all still buy their products without discounts. Why?
Because of brand perception.
We know that some brands will never discount, so we don’t expect discounts from them. We buy at full price. Does that mean we never buy products from discount brands?
No, of course we do. But here is the most critical piece of this entire episode, so I want you to pay very close attention:
We buy from discount brands so we can save money to give to premium brands.
The premium brands all make sales and all enjoy high profit margins because they never discount and they don’t resort to discounting to incentivize sales.
They can charge 10X what you do and their customers will pay it because they have a premium perception you don’t as a discount brand.
The same exact customer who scrounges around looking for coupons and discounts to save money on your products then turns around and spends it all on the full price item from the premium brand.
Choose Your Brand
You get to pick: are you a premium brand or a discount brand?
You can only choose one.