Posted by Andrew VanderPloeg
This week has brought a few reminders of how price can be a tempting and very natural reactionary marketing strategy, but one that doesn't actually solve sales problems.
The most recent reminder was an article about Groupon.
The two quotes that caught my attention the most in that article were:
The discounts offered through the Groupon coupons have turned out to be costly, and the repeat business they generate uncertain.
A Raymond James survey of roughly 115 merchants that used daily deals services during the fall found that 39 percent of merchants said they were not likely to run another Groupon promotion over the next couple of years. The top reasons cited were high commission rate and low rate of repeat customers gained through offering a promotion.
So here's the lesson that I take from that - clearly, deals and price cuts don't make advocates.
It's not to say that discounts and price cuts aren't a tool that you can use - they very well might be a good strategy to get people in the door (Groupon seems to succeed just fine in this area). But as a product or service provider, if you don't then knock people's socks off with an excellent product or service, very likely the only reason they'll ever come back is if you offer them yet another deal. When that happens, the only thing your price breaks are doing, is de-valuing and commoditizing your offering.
So, no matter how tempting it may seem to offer a price cut as a quick fix solution to a drop in sales (particularly in tough economic times), for every dollar that you chop off your price point, or discount you offer, you'd better spend a commensurate amount of time improving your product or service offering and the customer support around it while also communicating all of the value and impact that your product or service brings to the customer.
In the case of Groupon, the reality is that they likely aren't the problem - the problem is the intimate relationship that their business model has with the retailers who lack bigger picture, strategic thinking.
Simply stated, don't be one of those companies or organizations.
And yes, if you are a not-for-profit, these rules still apply for you. The quality of what you do and the support around it is always where good marketing and advertising starts.