Discounting: how to 'buy' new clients without selling your corporate soul

Now here's a common concern.

How do you harness the obvious revenue-generating benefits of discounting - without damaging your corporate image?

If, like Super Cheap Auto, you are positioned as a discounter in your particular industry category, promoting reduced prices may enhance your corporate image.

But, if you wish your market to perceive you as a quality service provider, careless discounting can easily do lasting damage to your image.

As with all marketing issues, it is important to bear your positioning in mind when considering discounting. Would you rather attract price-sensitive or quality-sensitive clients?

If you're like many executives, you will agree that your clients are looking for a little of each! We will assume, however, that you would prefer your organisation to be recognised more for quality products and services, than for rock bottom prices.

With this in mind, is it possible for you to discount your products without discounting your market's perception of your organisation?

Yes, it is. But to do so successfully, you will need to do a little lateral thinking.

Let's get started.

First, calculate how much you can afford to spend, to acquire a new client. This figure should take into account all of your fixed and variable costs, along with what marketers call the lifetime value of your average client. (In reality, a lifetime is a long time over which to recoup costs. Try looking at your average client's spend over a 1 to 5 year period.)

Once you know how much you can spend to acquire a new client, it is just a matter of choosing the most effective way to invest this sum.

You have three basic options. You can entice a potential client to buy from you by adding value to your product or service, or by cutting your prices. Or you can use general advertising simply to promote awareness of your product.

Because an effective general advertising campaign will probably add (perceived) value to your product, we will only consider the first two options.

Cutting prices

Sadly, some businesses entire marketing strategies can be summed up with these two words. Sure, closing down, stock clearance, end of season, stocktake and liquidation sales generate revenue and increase store traffic, but they also encourage price competition in your marketplace. Worse still, they teach your market that price is of primary importance when making a purchasing decision.

If you must hold a sale, please remember that as you discount your prices, your turnover must increase exponentially to make up for lost margins. Make an extra effort to ensure that your sale is giving you business you wouldn't otherwise have had.

Instead of holding a sale that drags on for weeks, why not have an invitation-only event for one day or one night only? Provide refreshments and entertainment, (an auction, a fashion parade or a new product demonstration) and offer people incentives for buying in bulk. If you have good attendance at such an event you can generate incredible revenue in a small period of time.

The way you articulate an offer can have an enormous effect on the way that offer is perceived by your marketplace. Instead of offering your potential clients a discount, you might give them a cheque (made payable to you) to be used to purchase your product. This option allows you to retain a greater perception of value than you would if you simply slashed the price.

If you have a good product, sampling is often a highly effective way to invest your marketing dollar. If you can get your market to try your product for free (or for a nominal fee), you are giving it an opportunity to sell itself. The power of sampling was demonstrated in the 20's by the father of modern advertising, Claude Hopkins. He turned many companies around simply by exchanging their institutional advertising campaigns for sampling programs.

Sampling works just as well today as it did back then. As an example, Business Queensland successfully market their newspaper by giving away 13 week trial subscriptions to Chief Executives and potential subscribers.

The best way to run a sampling program is to place an advertisement inviting people either to phone, or to exchange a coupon for a sample. If you sell high-ticket items, that sample could be a free trial, or a ticket to an inexpensive seminar. (Just be sure that there is real perceived value associated with your offer.) Please note that solicited samples will almost always out perform unsolicited ones. (I believe Business Queensland would sell their subscriptions more cost-effectively if they invited potential clients to request trial subscriptions).

Adding value

A potential client's desire for your product can be measured with a simple formula. Desire = Perceived Value - Price. You can see that, while you can make your product appear more attractive by slashing its price, you can also do so by adding value.

The good news is that the real cost of adding value to your product is often minimal when compared to the resulting perception of increased value from your client's perspective. This means that a dollar invested to add value to a product will go a lot further than a dollar slashed from its selling price. Sometimes value can be added with almost no cost. (e.g. Money back guarantees, hot-line support services, and even smiles and friendly words at the cash register!)

The airlines have successfully added value with their frequent flyer programs. Loyalty programs like these are one way of insulating yourself from price cutting opponents. I was recently talking to a builder who had just qualified for a free VCR from his steel merchant as a result of such a program!

It is also possible to add value to your services with competitions and prize give-aways - but tread carefully here, you must ensure that your offer will appeal to your target market.

I believe that one of the most effective ways to add value to your product is to educate your marketplace. As Noel Whittaker has proved, people develop a strong allegiance to those who educate them.

Even if you don't wish to go to the trouble of writing a book, you can educate your market with free reports, seminars, newsletters, advertorials and informative brochures and promotional material.

Nothing makes consumers more price sensitive than lack of knowledge. A new car buyer will not expect to buy a BMW for the same price as a Holden Barina because they understand the differences (both real and perceived) between these two cars. But they will buy their BMW from the lowest priced dealer if they do not understand (or believe) the additional value offered by their opposition.

Accordingly, if you take the time to educate your potential customers you can reposition your company into an entirely new category in the consumer's mind. You can be the BMW among many Holden Barinas! Noel Whittaker has done exactly this.

As you can see, it is possible to buy new clients without selling your corporate soul. Spend some time developing an understanding of your market, and then adhere to some of these basic marketing principles - and you will find that new client acquisition becomes a sensible, mutually beneficial pursuit - instead of a mindless act of corporate prostitution.

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