Friday, September 7, 2007

The Dangers of Desperate Discounting: Dominion Homes

I was at the post office this afternoon when I heard a radio spot for Dominion Homes, a Columbus, OH based home builder, advertising a special promotion: “$55,000 off select inventory homes.” I was filling out a priority mail address sticker when I heard this so I thought to myself, “surely I heard that wrong.” I continued to listen and before the spot ended, they said it again, “$55,000 off select inventory homes.” When I realized my ears weren’t deceiving me, I couldn’t help but laugh.

Discounting is a dangerous game for any business, especially home builders. There are two major problems with the “$55,000 off” promotion (besides the obvious).

1.) BRAND VALUE: This promotion takes the cake for the most desperate sounding home builder campaign I have ever heard. They might as well run a radio spot announcing that their homes are over-priced, they aren’t selling and their profit is no longer important as long as they unload a few houses. “Oh, and we’re desperate.”

Rather than creating value through the brand, credibility of the business, extra features and confidence in the stability of the company, they are telling everyone to make their purchase decision primarily on price.

I understand the struggle between short-term sales results and long-term brand building but, to reference a previous post, attracting transactional shoppers with a promotion this extreme, absolutely alienates relational buyers.

I don’t know the details of the promotion because it isn’t on their website (tisk tisk Dominion… you must have missed my “offline advertising drives 67% of web searchers” post). However, I’m sure it is extremely limited and only applies to very few homes. So why belittle the brand only to drive transactional shoppers who will be angry when they realize the promotions limitations?

2.) CUSTOMER VALUE: As the marketing guy at Lifestyle Communities, I conducted a survey the results of which showed that homeowners believe there is a direct correlation between the value of the brand that built their home and the value of their investment. In other words, the value of their home is tied to the value of the brand that built it. Dominion is continuing to remind everyone that their brand is damaged goods. “No seriously, we’re desperate.” (read about the Dominion debacle here)

What happens when the promotion is over? “My neighbor got a $55,000 discount and I don’t?”

To borrow a term from one of my favorite books, Blue Ocean Strategy, "innovate value" instead of discounting value! Be creative and develop promotional strategies that increase the value perceived by the customer. Do this without increasing the price and you are innovating value.

Lesson for Small Business Marketers:

Promotions are great but there is a fine line between discounts and desperation. Don’t discount your revenue when you need it the most. Be creative and find ways to add value instead.

Examples of innovating value through promotions:

Bank – instead of free business checking accounts… business checking accounts with free online bill pay.

Hair Salon – instead of 50% off next visit… free bottle of shampoo with next visit.

Wine store – instead of 25% off select wines… two free tickets to weekly wine tasting event with $100 purchase.

Car wash – instead of buy one get one free… but one get free vacuuming.

HOMEBUILDER – instead of $55,000 off select homes… $5,000 in free upgrades. (Yes, that’s 4 digits not 5).

Let your brand, quality product and reputation do the rest of the selling.

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