Small Business Discount Pricing - Summary of key points

Over the past few days, I've made it quite clear how I feel about discounting when it comes to long term brand value. Below I have summarized the key takeaways that every small business should consider before developing a discount promotional strategy.
1.) Discounting attracts price shoppers. These people are “transactional” and make their purchase decisions primarily on price and consider most things a commodity. Discounting affirms their belief that your product or service should be evaluated on price and conditions this shopper to look for the sale. Some businesses are very successful because of discount shoppers and there is nothing wrong with that. Just make sure that you are that type of business before you start discounting.
2.) Discounting can degrade the perception of quality. They say “price commands respect” and that is absolutely true (within reason). If you can justify your product or service being more expensive than the competition, then it should be and you should be proud of that! Just make sure the consumer knows why and don’t contradict yourself by deep discounting. In this type of situation, look for ways to add value instead (See Dangers of Desperate Discounting: Dominion Homes post).
3.) When setting prices, don’t fall for the $X.99” cliché approach just to eek out an extra dollar. Go up or down with the price and remember that the right most digit is what shapes the perception of the deal. If an item is originally priced $289, a discount price of $221 may seem like a better deal than $209.
4.) And finally… if you must discount, use a percentage off instead of dollars off. By using percentages, consumers are less likely to ever realize what they actually paid for the product. Therefore they are less likely to evaluate your product on that price the next time they are making a purchase.

There is a lot more to consider when running a discount sale than many small businesses ever realize. It really all comes down to short term vs. long term results. If you are struggling with your pricing/discount strategy, let me know and I'd be happy to discuss with you personally. (jspring@prstore.com)

To avoid belaboring the subject, this will be my last post in this series. Please feel free to comment!

The Psychology of Discount Pricing

Another article on discounting that provides even more enlightenment on the subject. Retailers like to discount using dollar off promotions. They advertise sales like "10 for $10" because they want the savings to be memorable! If they advertised 15% off, I may never take the time to do the math and know exactly what I paid for the item.

The specific dollar off discount strategy benefits "low price" retailers because they get to reinforce their claim of having low prices and great deals. On the contrary, this is bad for the brand because consumers will easily remember what they paid for the item the last time they shopped. Then, when it isn't on sale, they may think that it isn't worth paying full price.

This study claims that when the percentage off discount strategy is used, consumers are more likely to accept the product at full price the next time they shop.

Not earth shattering but interesting and another tip for any small business marketer.

Consumer Perception of Sale Prices... Less is More

The Journal of Consumer Research released a new study showing that consumers determine the value of a sale price based primarily on the right digit. If the right digit is less than 5, the sale price is perceived as a greater value.

"The researchers show that "right-digit effect" influences consumer perception of sale prices. When the right digits are small, people perceive the discount to be larger than when the right digits are large. In other words, an item on sale for $211 from the original price of $222 is thought to be a better deal than an item on sale for $188 from an original price of $199, even though both discounts are $11."

Small Business Marketing Lesson:

Don't be fooled by the traditional "$X.99" approach to pricing and discounting. Experiment with the "right-digit effect" the next time you are setting prices and see how it goes.