The Doom Loop of Discounting
I’ve been working to codify some of the ideas and explanations I have lately.
Why?
I like to use multiple medias to teach ideas.
A week or so ago, someone asked me about Tesla’s manipulation of their prices.
Okay, discounting in pursuit of demand generation.
Here are a few facts about pricing:
Price isn’t really a driver of demand. At best, price drops pull demand forward.
Perception of Value = Price Integrity. The more value that people see, the less likely you are to have an argument about price.
Discounts lead to more discounts.
Okay…here’s the explanation for the graphic above.
Sales are falling.
The executive team starts panicking.
“We have to do something!”
So, the team discounts.
There’s a sales bump because demand is pulled forward.
The fall continues once the price promotion ends.
“We need to do something!”
Another discount.
The bump in sales is less.
The cycle repeats.
Until you get no boost from the discounts at all.
That’s the doom loop of discounts.
How do you avoid this?
3 things I’ve seen that matter more than anything:
Invest in your brand.
Make sure you are targeting the right market.
Have a strong position.
Strategy drives price.
I’ve been formalizing my Billion Dollar Strategy process and the components of a good strategy look like this:
What does success look like?
Who is our customer?
Why will they pick up?
What resources do we need to make this happen?
What action will we take?
Most of the price breakdowns I see start at the top.
Why?
You don’t know what success looks like. You define success in vague or generic terms.
You might not know who your customer is. That might be generic or vague. Worse, “I can help anyone.”
Finally, you may not have any clear idea why people pick you.
Instead of standing strong, you become a “me too” product or service.
Why do folks work with me?
I help executives grow their businesses so they get higher revenues and more profit. I’ve done this over and over again using this Billion Dollar Strategy process to drive revenue and profits for companies like AmEx, Yellow Tail Wines, and more.
That’s why I don’t discount.
What about you?
Does “The Doom Loop of Discounts” make sense to you?
Dave
P.S. I’m doing a FREE ticketing webinar this week to try out some new ideas on sales/marketing/branding.