Last week, I received an email from McCormick and Schmick’s Seafood restaurant offering a good price on a three-course tasting meal, no coupon needed. My wife and I like M&S, so we decided to take advantage of this deal. We made reservations, showed up at the appropriate time, and were seated at a table.
We scoured the menu for the three-course meal special but couldn’t find it anywhere. Had I misread the email? When we asked the server, she left and returned with a separate menu.
They made us ask for the special deal. As a pricing guy, I loved it!
Here are two lessons in this story.
First, every discount should have an objective. In this case M&S sent the email with low pricing to attract customers to their restaurant. Of course they would prefer people come and buy off the regular priced menu, but they wanted to attract additional customers with a price deal. They were willing to accept lower margins for these incremental customers.
Second, don’t give your best prices to customers who don’t “deserve” them. M&S diners who came in without knowing about the deal expected to pay regular prices, so there was no reason to give them the special deal. Asking for the discount is how you proved you deserved it.
Know why you are discounting
How about your business? When you offer a discount on something, do you know exactly what you hope to accomplish? Besides attracting new customers, you may be trying to influence their choice of products, or you may be trying to increase consumption. Just know why you’re offering the discount.
Once you know why you’re discounting you can determine who should get the lower prices. You want the best prices to go to the right people, but not to everybody. Find ways to target your discounts.
As a final thought, when I had to ask for the special menu I was surprised. The uniqueness of the experience is what grabbed my attention. However, if you think about it, this is really very similar to requiring a coupon, only without the coupon. Pretty interesting. You may want to add this tactic to your grab bag of pricing ideas for attracting new customers.
Mark Stiving is a pricing strategist, runs Pragmatic Pricing, and is the author of Impact Pricing: Your Blueprint for Driving Profits.
I see it all the time. I even take advantage of it. Some businesses have too many discount sales and special offers — in fact it can seem like a permanent sale. I call this the DFS effect.
But what happens? No-one buys at full price.
Now it is, of course, very tempting to drop your prices when you have stock to move, and I am not suggesting that you don’t ever have sales, just don’t have them all the time.
If every email you’re sending out to your list is just what’s on sale, or that you’ve knocked so-and-so-many per cent off “this weekend only”, and if you send them often enough, it’s not going to take long to wipe out all your full price sales.
There is a certain children’s mail order company that I often use to buy things for my small people and I know that I only have to hang on for another week or so every time I want to buy something and sure enough a discount voucher will plop onto the doormat through the post. I am regular customer and so I know I don’t have to wait long. Now what’s silly about this is that yes I do buy when I get my discount voucher, but the business has lost my momentum, and also the cash I was ready to part with “on the spot”.
Now for a big mail order catalogue, or a large chain of furniture stores (ahem!) the continuous offers and discounting is part of a major marketing plan, but if you’re a small business you don’t always have the luxury of bigger margins and a constant flow of orders. If you’re a smaller business you value every sale, and all of those that are not at full price just mean you have to work harder or sell more (or both!). You also then set a precedent that your prices are not “real” but “inflated” (yes I know those DFS sofas were on sale somewhere for a week at £1500 but no-one was buying them, right?).
So stick by your guns and don’t be on sale all the time. Think about value-added offers instead, or extras you can include. Once you lower your prices (which is effectively what you do when you’re always on sale) it’s really hard to push them back up again to the same customers. Then you’re left with either finding new customers, or accepting that you’ll only ever be able to sell for less.
And don’t even think about offering five years interest free credit if you’re a small business either! Money up front thank you very much.