Discounting versus value adding – the big question we all face at some stage.
I recently attended a seminar where the presenter shared some results of a major consumer survey. One of the most interesting statistics that she quoted was that 85% of consumers prefer to be offered some kind of value adding offer as opposed to a straight discount.
Now, this is a powerful piece of information when you think about it. We all reach a stage in our business where we need some form of “hook” or special offer to get the attention of potential customers (and of course to get our existing customers to buy from us again). The first place where many people start is by offering a discount. Many times this leads to a price war between businesses and we see that played out in the media all the time.
My view is that no one wins a price war (except the consumer). It erodes revenue, causes businesses to become less profitable and then reduce their overall level of service, the quality of their products etc – in other words they have to pay for the discount somehow. Many business have sent themselves broke by basing their entire business model on discounting.
I agree fully with the concept of value adding. To clarify this, it is where we keep the price of a product or service at the normal level, but we offer some other form of incentive to the customer. Now I know this value add still generally costs us, but the difference is the perceived value. Our value added item might have a retail value of say $500 but it might only cost us $250. The customer see’s the $500 and that is more appealing than a straight discount, according to this survey, to at least 85% of the population.
Hence the concept of buy one get on free, buy two get one free, or a free gift with purchase etc are all appealing and more affective than a straight percentage discount.
I feel that the real key here is to be creative. Try different kinds of value adding. Look for ideas that will really appeal to your customers and make them feel like they really are getting a great deal, with high perceived value.
So next time you are considering what kind of offer you will make, I suggest going down the path of value adding rather than discounting. Be smart about it, be creative and make sure that what you are offering is something your customers want. I believe that over time we will see much more value adding going on and it is already starting to surface in electrical retailers as a preferred option to straight price driven discounting. How can you apply value adding to your business?
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