The real reason you should never discount or giveaway your products or services.

A long-held belief that the best way to get new clients quickly is to run a promotion offering something you usually sell for free or at a discounted rate. But is that really the best way to grow your business? How do giveaways and discounts affect your business’s ability to find new client in the long term?

The moment you say something is free, the value drops to zero.

 If you are giving away for free any product or service that you would usually sell, no matter what the value or the perceived value of it is, the moment you say it is free, the value of it drops to zero. It is just as hard for me to give away something for free as it is to sell the same thing for $10,000. Why? Because of the way that markets work.

 How do the markets work?

The marketplace is made up of bands or tiers of markets. Free products or giveaways sit in one market and then you have the small, middle, top-tier markets. The markets get smaller the higher you go which means there are less people in each band. For example, there are far more people who will drive a secondhand Toyota Corolla than there are Ferrari owners. There are also less competitors in the higher price range markets. There are very few companies fighting to be Ferrari; there are very few brands that can sit in that half a million dollar plus car price band.

Why is it so hard to find clients even when you give things away for free?

Firstly, the free market is saturated. Everyone wants free stuff. There are also lots of companies giving away free stuff or really low priced, ‘cheap’ products and services. So, although there are a lot of people in the free market, there is also a lot of competition. Finding clients will be just as hard as it is to find the top-tier clients.

 The second part of it is, there is no perceived value. If you think of a Ferrari, the fact that its price is so high adds value to itself. Only a limited number of people can buy a Ferrari which is the value of the product in the first place. Scarcity adds value. If something is free, there is no scarcity. If it is free, then you can take as many as you want. There is no scarcity and so therefore the perceived value is really low, or non-existent.

When you need to win or compete in a market, add on value.

The one thing you can always giveaway for free is added value. If you need to find and win new clients, add on value to a base package or service instead. Hotels do this a lot, for example, they may be charging the same room rates as competitor hotels, but they will add on a free breakfast. From the customer’s perspective, they think, “I’m getting $80 worth of free breakfast with my room.” From the hotel’s perspective, the cost of that breakfast isn’t $80. There is a small cost that comes out of the room rate, but they are not having to discount the rate.

Discounting is a branding exercise that lowers your brand value.

Discounts are the same as giving your products or services away for free. It lowers the perceived value of what you are offering, and then it's very hard to add that value back. Even once your sale or limited time offer ends, you will be in that new market position of a discounted product or service.

 Recommended actions: Do your market research and understand where you fit. Which tier do your products or services in? What added value can you give away for free to generate new clients?