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The death of discounting

July 27, 2015 by Marketing Donut contributor

The death of discounting{{}}

I was talking to a client in the retail sector and reviewing the important figures in his company. A quick overview showed us that the sales were taking a dive and something needed to be done to increase those sales before the end of the quarter.

My first thought was to look at pricing strategies and consider an end of season sale to boost takings.

As a business coach, I usually guide my clients to the right answers. But in this case, the error in judgement and the potential profit impact was so high that I had to immediately banish the thought.

The dangers of discounting

The idea that people will buy from you because you are the cheapest is totally flawed. There is a difference between price and value and the truth is, people are looking to buy value, not spend the least.

Discounting your product actually has a much larger impact on your business than you may think.

Imagine that your customer is paying £100 for your product or service. Let us take £60 as your direct costs. So with a total price of £100 and direct costs of £60, you have a gross profit of £40.

Now let us assume you decide on a 10% discount. You are reducing the amount that you get from your customer to £90. Your direct costs, however, remain the same at £60. Now you are making a gross profit of £30. The decrease in just 10% of the price is creating a 25% decrease in your actual profit. And the smaller your margin, the bigger the drop in profits.

So if you are planning to discount your product, make sure you assess the real impact on your business. Most of the time, it won't be worth it.

The impact of increasing your prices

When business owners come to me for business coaching, they are usually trying to take their business to the next level. And yet, the only time they have ever increased their prices is because of an increase in costs.

This is a huge missed opportunity, especially for those who provide services. If you have been practicing your business for some years, your brand has gained value. You have proven that there is a market for your expertise and that in itself makes it more valuable.

When the value of your product or service has changed, you can reconsider your pricing strategies.

If your costs have not gone up, a small price increase can dramatically increase your profit margin. If your price is £100 and your costs are £60 and you put up your prices by just 10%, you are actually increasing your profit by 25%.

When you increase your prices, even by a small incremental amount, the effect on your profits can be just as dramatic as the damage that comes from discounting your products.

So how do you increase prices?

You cannot just increase prices whenever you like. You have to assess what the value is of the product you are offering and whether your price truly reflects that value. So your pricing strategies should focus not on price but on value.

One way of adding value is to assess your expertise. As a long-standing and trust-worthy business, you provide assurance to customers and you can add a premium for that assurance.

Another way is to identify your competitors and figure out how and why you are better. If you are not, then make yourself better so you can increase your prices.

What if you still want to tempt customers with lower prices?

It is possible to add value in some way without discounting, while providing a lower fee to your customers. You can do this by providing offers instead of discounts.

A really great example is what supermarkets do, where they offer vouchers for "£6 off your next £40 spend" or something to that effect. You can also create "buy 2 get 1 at half price" deals and add value without discounting too much much.

If you feel that you absolutely must offer a discount then make it work for you in some other way. An easy way to get value for your business out of a discount is to relate the discount to an early-bird payment or shorter credit terms such as, "10% off if you pay up front".

But whenever you can, say no to discounting. Instead, come up with smart pricing strategies to provide value without slashing your profits.

Copyright © 2015 Graham Thatcher

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Get personal with marketing

July 14, 2010 by Ben Dyer

I read with great interest this week the news that Twitter is getting into the ecommerce space.

In an idea copied from the very popular US-based service Woot, Twitter will be advertising time-sensitive deals via a dedicated account (@earlybird). In a reversal of traditional marketing norms, you will only receive the daily deals by following the account.

Sites offering time sensitive deals, vouchers or private sales clubs have rarely been off the front pages of tech or retail blogs for the past year. It seems almost every day I am reading about a Groupon clone springing up. Even the old man on the digital high street, Amazon, is in the game with their recent acquisition of Woot.

I can see the attraction. As humans we like to feel special, we like the sense of getting a good deal or “beating the man”. Sites like this play as much towards our egos as they do our budgets.

We can learn from this. Why not experiment with your online or traditional marketing or sales processes? Make things personal, spend time researching your customer base and tailor the offering. I love it when I walk into our local fishmongers and they know my name and what I normally buy. I always get offered something special that they know I would like. It may sound gimmicky, but it works.

Technology is enabling us, ironically, to become more personal. Why not give it ago?

Ben Dyer is CEO for SellerDeck

How can creating an individual customer view add real value to your data?

February 10, 2010 by Phil Capper

Companies are generally very good at collecting customer data. They have processes and systems in place to record every touch point a customer has with them. Whether it be in-store, online, through an email or direct mail campaign or via telesales and telemarketing, behaviour is tracked from various sources and saved into various systems.
However, all too often this data is not integrated, it is stored in different locations or departments (web databases/offline databases/telesales databases etc) and is never consolidated into one central location. As a result companies fail to create an individual customer view and ultimately miss seeing the value of their data.
This is because segmented customer data can’t be analysed for trends or buying habits and opportunities to cross sell or up sell are missed. Most importantly, you cannot build a relationship with your customer without knowing everything about them.
By using an intelligent data management solution that will automatically pull customer data from your various sources into one central database, you can start to build an individual view of each customer, learn everything about them and begin to build valuable, meaningful relationships.
When you can see, on one simple interface who your customer is, their browsing and buying history, what messages they respond to, how they respond, at what time, what they like and don’t like you can communicate with them in a relevant and targeted way, learn about them and understand how they interact with you. By doing this you begin to add real value to your data.
The next step needs to be taken in data capture and individual customer views need to be created to ensure trends and behaviours aren’t missed or ignored and businesses can begin to learn about every aspect of their customer.

Phil Capper of Parker Sandford Ltd

Local businesses must seize low-risk advertising opportunities

July 01, 2009 by Jenny Nguyen

Local press has been having a torrid time of it lately.  It seems that scarcely a week goes by without reports of more problems for titles and groups within the medium.  It's also a tough time for small businesses, which are seeing their profits squeezed by the downturn, while knowing full well that there has never been a more important time to shout louder than others in their field. Given these circumstances it might seem like a very frightening time to commit precious promotional budget to a struggling medium.  But there are alternatives, and now is a great time to explore them.  A service such as,  an online service helping UK businesses buy and manage outdoor advertising, offers a viable, effective, low-cost and risk-free way to build up promotional collateral free from any potential surrounding editorial negativity.  There is no denying that local press has a role to play in the promotional mix for small businesses. It's a proven way of reaching consumers in a local area. But now is surely the time for local businesses to do some research and be more adventurous, and gain stand-out by doing so.  Outdoor advertising is now within the reach of small business managers.

Price and Prejudice

June 08, 2009 by Chris Barling

Some people think that price is everything. My son currently works in my company, SellerDeck, sitting beside me in the home office. His job is account managing customers who use our ecommerce web hosting. It’s very instructive listening in. We’re not the cheapest offering, although we believe that we offer good value. Since you will start losing orders and customers the second your ecommerce web site goes down, and Google research suggests that marginally slow sites reduce orders by 20%, you would expect quality of service to be the major topic of conversation. Often it is, but for a minority, price is all that matters. In fact, there are relatively few products and services where price should be the sole criterion. These probably include electricity, where the same stuff always comes down the same wire anyway, and petrol, where rival brands across town often sell petrol from the same refinery. But some people always focus on price. The question is; do you even want to speak to customers who only care about price? Wouldn’t these customers be better hassling the competition? They not only pay less, they can also waste a lot of time. Competing on price requires the lowest possible cost base. So most businesses try to compete on overall value. My suggestion is if you aren’t losing a few customers on price, you probably aren’t charging enough. And those customers that you would lose from slightly higher prices, will probably be the very same ones that would be the least profitable and the most trouble.

Why no-cost or low-cost can still be effective

May 07, 2009 by Mark Williams

I’ve been waging savage battles in my garden for some time, but recently I realised I was losing the war.

Despite a sustained campaign – the horticultural equivalent of shock and awe – the weeds just keep coming back for more. Wildly overgrown pear trees have launched a daring counter offensive behind my shed. My borders are barren and my lawn is baldy.

A few days ago, just when I was coming to terms with the painful realisation I’m no Alan Titchmarsh, a leaflet fell through my door, posted by a local landscape gardening firm. It looked professional, included endorsements from satisfied punters and promised “A high-quality service at an affordable price”. Nothing groundbreaking: but effective enough.
It made me think. Sure, even the smallest firms need to harness cutting-edge marketing solutions. Like many people these days, when I need something I usually turn to Google first for help.

But while it’s easy to focus on web and e-marketing, this shouldn’t be at the expense of more traditional alternatives. You must get the basics right – and often this means low-cost or no-cost solutions.

Trevor’s a lovely guy who lives a few doors down from my house. He’s a central heating engineer: the sign on his van told me so. I didn’t know him, but called his mobile and he came around and fixed my radiators last winter. I told my friends how good he was and they too got him in, this time to take care of the far greater job of fitting a new system.

I’m not sure whether Trevor has his own website (let alone Twitters), but I know he recognises the importance of doing a good job at a fair price, while the simple sign on his van probably enables him to get much of his work. I’ve also seen his card in our local newsagent’s window.

My garden? Well, the landscape people gave me a good quote and will soon launch the final decisive battle. Look out weeds – victory is mine.

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