When Incessant Discounting Leads to Price Apathy
It's that time of year. Your snail mail, inbox and social channels are filled with "special" offers. Indeed, you'd better make a decision fast, since this offer expires at midnight!
It's understandable that businesses attempt to increase top-line revenue around certain peak buying periods. But, if it truly is a buying season, your margin erosion may lead to revenue, but not real growth.
Everyday we're bombarded by a slew of offers. Many companies send out slightly different offers daily. Of course, this leads to price apathy, where you no longer are compelled to make a decision since tomorrow will bring another (perhaps better) offer. Once indifferent to the message, any compulsion to act can be completely removed.
If your standard of growth measure is year over year, or even day over day from a previous season, then the likely drive will be to discount to increase revenue. Of course, that doesn't look at what may be more important to the bottom line--margin gap. Your margin loss then becomes a part of your cost to acquire.
Smaller ticket items tend to be the most likely to discount excessively. The rationale is that you have to sell a lot of widgets to make revenue, so discount the hell out of them and push them out the door. This selling mentality minimizes value, especially on commodities, and likely has a counter-intuitive effect; short-term gains followed by long term loss.
On some delivery methods, email is a great example, your opt-out rates may increase. Understandable, but less measurable effects can be direct mail that immediately gets tossed, or unfollowers on your social channels. It makes you wonder how many companies look at these less obvious metrics when judging success.
As an alternative to heavy, perpetual discounting there may be a better way--consider adding value rather than taking away price. By giving more for the same amount of value, you have a way to control margin directly, by measuring the value add and its impact on the overall sale. Typically, a value add on the next higher priced item (or tier) works best and gives the opportunity to up-sell (generally resulting in higher margins).
Of course, re-targeting with a discount is usually an acceptable philosophy, especially in season. If you've captured leads and segmented them, it should be easy, with marketing automation, to re-target them with point-in-time offers. In that way, you appear to make an offering to a select few, for a limited time. If someone hasn't purchased in X (insert sales cycle metric here), then a targeted offer may bring them back.
Whatever the tact, be sure that your selling philosophy aligns with your revenue goals.