Rafi Mohammed

Discount with Grace

Posted on October 21st, 2008 (1 Comments)

We are in the midst of an economic triple whammy: commodity prices are going up, the price of a market basket of goods is breaking wallets, and the economy is on shaky ground. As a result, consumers are trading down as well as cutting back on their purchases. By trading down, I mean they are changing the value they place on products, in particular for branded products. During good times, it’s easy to throw caution to the wind and purchase premium products such as those with big brand names. But when times get tough, discounted store brands start looking more attractive. If your sales are sagging, chances are that you are considering lowering prices. My advice to you is to “discount with grace.”

Temporarily lowering prices (as you hope to increase them in the future) is tricky. I once worked with a manufacturer that was rolling out a premium product. To entice customers to try the product, they initially offered it at a similar price as their “regular” product. Customers became convinced of the product’s supreme attributes. However, when it came time to boost the price to reflect its premium value, customers balked. The low rollout price was embedded in their heads and it was difficult to change this perception. Discounting with grace involves offering discounts in a manner that maintains your product’s price and brand perceptions. So consider maintaining your price and then offering discounts such as: buy 3: get one for free, coupons, rebates, limited promotions, or even smaller sizes (or lower cost versions). These tactics maintain your product’s premium perception in customers’ minds as you grant them discounts.

I recently received a $99 dinner for 2 coupon in the mail from Morton’s (the steakhouse) that was pretty ingenious. $99 gets you two single filets mignon entrees, two appetizers (limited selection), two salads (limited selection), potato and vegetable, and two desserts (limited selection). Plus, for an extra $33, they’ll throw in a bottle of wine. The offer was interesting for three reasons. First, Morton’s emphasized the offer would not be featured at its restaurants, only those with a coupon in hand would be eligible to receive it. This eliminates the chance of a diner showing up, ready to pay full price, and then trading down to the $99 deal if they see it. Second, the deal is only available to diners who identify themselves as caring about price (i.e., those who bring in a coupon). And finally, the restaurant restricts the discounted food items. So if I value the flexibility of choosing whatever I want, I’ll skip the deal and pay full price.

Starwood is offering a great promotion at select hotels: pay full price for the first night and then stay for up to two consecutive nights for a price equal to the last two digits of your birth year. So in the case of the Sheraton Commander Hotel in Harvard Square, the first night would be $249 and the second/third nights would be $64 for me (I was born in 1964). A significant savings, don’t you think? Starwood is using this fun promotion to disguise the fact that they need to drop prices drastically.

Discounting with grace helps your company navigate today’s challenging economic environment while being well-positioned to boost prices in better times.

Add Comment
Send to Friend
Email Signup
RSS Feed

Readers' Comments on This Blog Entry

From rsimeone on December 11th, 2008
These are all excellent wasy to discount in these troubled times. I especially liked the Starwoods offer since it made me feel good about when I was born. (1964, by the way). The older the person the better the rate. It is brilliant!