The Only Four Reasons to EVER Lower Your Prices

Published: Jan 24, 2019
Modified: Mar 24, 2020

Many large corporations hope to increase cash flow and market share by promoting new money-saving schemes to consumers.  These include auto dealers Ford, Toyota, and Honda and restaurants Applebee’s, Outback, and McDonalds.  Add consumer product giants like Procter and Gamble, Kraft Foods, and Unilever.  Even the government is getting into the act, with initiatives like Cash for Clunkers.

Given the current economy, it’s the perfect time to discount your products and services too, right?  Maybe; maybe not.

Why do people buy?
People will buy IF they think a product or service is deserving of their money.  Some would call that perceived value.  But here’s the big truth: people will find a reason to spend money on things that make little or no sense to anyone else, IF the purchase makes them feel better—about themselves, their current situation, and their future. 

A purchasing decision has nothing to do with budget, approval, or timing.  Seriously. That’s why people overextend their credit, buy liquor and cigarettes, and throw divorce parties.  So lowering prices is not as important as persuading others that you can make them feel better.

There are ONLY four reasons to offer customers a discount:

  1. To move out slow-moving inventory/items or discontinue a service of product

  2. To make room for new models, products, or services

  3. To attract price shopper customers

  4. To reward long-term customers

The dangers of discounting
There are consequences to lowering your prices—which is why you must think long and hard before you do it, especially if you deal in professional services or a high-end product. 

1. Once your prices go down, they seldom can go back up.  Once you have conditioned people to your inclination to lower prices, they’ll be suspicious of your pricing integrity and will expect you to “work a deal” from that point on.

2. The discount that comes at the end of the month, quarter, or season can turn into a trap.  Many years ago I was in the mainframe computer business.  I found that an easy way to make the quarterly quota (and so receive a bonus) was to get customers to add memory to their systems. 

We would always have an “end of quarter special” for lack of a better title.  It was great; we moved a lot of add-on memory devices.  But guess what?  Customers caught on and would only buy at the end of the quarter, knowing that’s when they could get the best price.  It’s like the day after Thanksgiving or Christmas.  Why would you ever buy before the holiday when you know the price will be slashed the day after?

Let me comment on the “reward” angle of number four in my list of the only times to discount.  Notice I stipulate “long-term” customers, rather than first time.  The best reward for the first time customer is great results.  That’s what turns them into long-term customers.  It’s a nice gesture to offer a discount in consideration for being a loyal patron. Then again, the best reward would be to deliver more great results again and again.  Isn’t that what the customer is really buying?

One more thing:  don’t discount simply because your competitor does.  This is a topic on strategic thinking and execution that I’ll cover one day in a separate article, but in short:  play by your rules, not your competitors’!

What customers really want
Don’t condition your customers to wait for a deal.  Condition your customers to expect to feel better after they buy from you.

After any consulting, coaching, or speaking engagement, clients say things like: “Thanks Vince, I feel better; this was very good; great idea; interesting take on things,” etc.  When I hear phrases like those, I know I made a difference. 

Don’t get me wrong—it’s not about feel-good therapy sessions.  The client must benefit in some tangible way: objectives must have been met; a real impact had to have been made.  But helping the client feel better, have peace of mind, and know they’re not alone when dealing with a difficult situation—that’s priceless. 

That’s also why my fees have continued to go up over the years.  It’s the result of on-going learning, increased credentials, and the breath and depth of results from more and more experiences over time. 

The value in losing customers
Have I lost clients over price?  Sure.  As a business grows, you will find a percentage of your clients leave over time.  It may be because your value, price, or focus don’t align with their needs, desires, or budget. 

There are some customers you don’t want:  an unprofitable customer, an uncivil customer, and an overly-demanding customer.  Unless you are willing and priced to deal with loser customers, it is in your best interest to get rid of them.

Losing a customer that you’ve outgrown or has outgrown you isn’t bad. 

The key to a successful business is all about aligning your products and services with a group of people—your ideal customers—whom you think will feel better about buying from you at a price you think is reasonable.

In the beginning, a business goes after anyone with a pulse and a checkbook.  But once a business understands its ideal customer profile, everything should be focused around attracting and retaining that customer.  That means investing and committing to on-going research, development, planning, thinking, fiscal management, ethics emphasis, and other internal and external factors that constantly shift.

There are people out there willing to pay your price.  It simply takes work, time, and money to find them—but you will.  And once they become satisfied, long-term customers, you’ll have a reason to offer them a special discount.