Should You Offer A Discount To Land A New Customer?

As a business owner, our primary objective is to acquire new customers.

If you don’t have a strategic marketing plan in place, you might be asking yourself how else you can entice people to buy your product or services. Naturally, if you’re new to the market, you’re probably also asking yourself “what should I charge for my product or my service”.

In this post, we discuss whether you should initially charge less in order to attract new customers. This is one of the least discussed aspects of launching a new business, so we to bring about some clarity regarding what you should charge when starting your business.

What’s the word on rates for businesses and freelance individuals?

If you’re a freelancer, you will be well-acquainted with the price war that exists for services. If you constantly lower your prices to outcompete your competition and the deal or project, your reputation in the industry might be “damaged” for a very long time.

In fact, some clients have grown so accustomed to this type of conduct that the moment you try to raise your price to normal levels, they refuse to pay more, despite the high quality of your work. They will simply move on to the next “cheap” freelancer.

This environment is unhealthy and it doesn’t encourage your positive attributes. Instead, it is more about getting the work done no matter how low the cost, and thus, continuing the vicious cycle. These we often see in low-paying content platforms where freelancers fall victim to bidding very low just to “bag” a gig.

The same concept as illustrated above is not unique to just freelancers. Brand new service businesses, like hair salons, graphic designers, coaches and the like might be selling themselves short in the name of getting business in the door.

Conversely, when owning a retail type of business and selling your products, you may worry that you’re charging too much. You could be concerned that your customers will leave and go to your competition instead. This usually leads to you charging less and not making a profit. This spells danger as you will no longer be able to keep your business “alive” and functioning, but instead, may have to close down, as you’re making zero profit.

No matter your business, a good price doesn’t necessarily mean a low price. However, a price war can begin between you and your competitors and this could ultimately backfire for both of you.

What is the deal with low prices?

When it comes to undercharging for your products and services, we need to dig a bit deeper. This topic might be a bit uncomfortable for some, but stick with us because it could prove to give you valuable insight and save you pain later down the line.

You see, when you are brand new at business, you are trying to make a name for yourself and also build on your experience. It makes sense to keep your prices reasonable until you’ve build your confidence and can go after bigger contracts or projects.

However, there’s another side to the story.

Sometimes what you are charging is linked to your perception of your worth. It could be that you are limiting your income due to worries about being too successful. Yes, fear of success is real and manifests in many business areas including how you choose to price your services.

If you think this is ridiculous, we want you to think of the following situation. Would you buy clothing or food items that are extremely cheap quality from a “shady looking” store? Imagine you have no prior knowledge of the brand or store, would you trust it? People often associate cheap with poor quality, which is often the case when goods are mass-produced. So ask yourself, why would you lower your prices to barely survival level just to get a customer?

Is this not sending the message that you aren’t worth more?

What is perceived worth?

In business, you’ll often hear the phrase “perceived value or worth” as it is the way customers value your products or services. Customers look for products to meet their needs and don’t take into consideration the calculations that affect the price such as the cost of production.

Customers are willing to pay for a product or service that matches or exceeds their perceived value of the product or service.

Marketing takes the approach of appealing to the customer’s emotions in a way to raise their perceived worth of the product.

Consider a high-end car compared to an entry-level car. An entry-level vehicle might satisfy the immediate need for transport, but it won’t have the same perceived worth as a more expensive brand which appeals to the customer’s needs for comfort, performance, and status. Thus, the customer may opt for the car with more bells and whistles as opposed to the standard, entry-level car.

Luxury accommodations, for example, come at a high price but you’ll get spa treatment, premium concierge service and lots more, as opposed to a regular B&B. Again, the price plays a role and the premium accommodation can thus charge more. Another point to keep in mind is that client expectations are increased when they know they’re going to pay more for something.

Pricing strategy 101 for small businesses

When it comes to prices, you can use a certain strategy that will help you make a profit, without being desperate for new customers.

Discount (in a bundle)

What is a discounted bundle you may be wondering? Well, this is where the business will offer a 3 for 2 or some discount if the customer takes more than one item. This works for retail business owners as well as individuals offering services.

The pros of bundle discounts are that you can sell either popular or non-popular products. While some products may be more popular with the clients, you can add the less popular ones into the bundle deal. In this way, you can get those items sold before their sell-by date and avoid more losses.

Bulk discount

When purchasing in bulk, some business owners could give their customer a discount for the products bought as not 1 or 2, but more items are bought in one go. In other words, your customer can enjoy a discount as long as they support by purchasing in bulk.

The same can work for services such as personal training, coaching and even beauty treatments. For instance, if they pay for 10 treatments/sessions upfront, the cost per session is lower than if they purchase them one by one.

Seasonal or event discounts

This type of discount isn’t uncommon in retail and many business owners tend to use this to their advantage as customers tend to purchase at these times too. Take Valentine’s Day, for example, many people celebrate this day and would be on the lookout for flowers chocolate, dinner discount deals etc. You can use this to your advantage and draw your customers in to purchase before Valentine’s Day or to get the special deal on the day.

**Note: Seasonal discounts happen over famous holidays like Easter, Christmas, Eid Mubarak, New Years day, or Black Friday for example.

Making a profit while adding discounts

Knowing what the purpose of the discount is, is very important. If you’re looking to clear stock at a discount, it may not mean the same for someone looking to gain valuable clients with a discount. In other words, when you’re looking to build a relationship with your customer or client and base it on loyalty your discount may offer them rewards. When clearing stock, you’re basically looking to get rid of items to avoid wastage and you may not be 100% concerned whether the packaging is a bit rough-looking.

Your discount doesn’t mean you have to sell yourself short and run at a loss. So, how do you make the discounts work to attract more customers and at the end of the day still make a profit?

• Market lower — don’t invest so much of your money and time into marketing, if you’re going to discount (because discounts mean you’ll be making less than you usually would selling at full price)
• Target specific customers — your discount shouldn’t be available to everyone, instead use it to grab new customers and “dormant” repeat buyers.
• Use your upselling techniques — you can take the liberty to upsell products to your existing buyers to increase sales. This can help you increase your profit margins.

Advantages of discounts

• Increase sales at a faster pace
• Attracts new customers
• It gives old customers something to benefit from (they save)
• Opportunity to clear out old stock

Disadvantages of discounts

• Creates a bad example (where some people will expect a discount or lower rates all the time)
• It focuses on the price and not the quality of the product or service (which may be overlooked going forward)
• Creates a negative relation to the service or product as it may seem (too cheap for good quality)
• It inevitably reduces the profitability of the business and makes meeting monthly targets even harder.

The Takeaway

Never undersell yourself.

Your time, value, and quality will benefit the lives of your customers and this is something you should be well compensated for.

You can strategically allow discounts when rewarding new customers for joining because this will help promote your brand. Some businesses even reward customers by giving them an extra discount for their referral or testimonial. This is a smart strategy that is a win-win for both the business and the customer.

Always consider what value you’ll bring to your customer’s lives. How much will it cost you to create this customer satisfaction and improved life?

Another thing to consider when running a successful business is to keep up with the increasing cost of the economy. You cannot run a business at cost or borderline at cost, because that’s the quickest way your business will go under.

There is no need to devalue your services just to be competitive. Remember, people will pay their perceived value of what they are buying, so you should ensure that what you sell is exceptional and then price it accordingly.

Originally published at https://blog.bigdomino.co.za on March 4, 2019.