Want a Discount? Pay Upfront...

When most stores decide to discount, they just lower their price. Right? Amazon, Wal-Mart…they markdown their prices. A friend recently shared with me an e-mail from the Wegmans supermarket chain announcing they were lowering prices because “During difficult times likes these, it's okay with us (Wegmans) if we make a little less money.”
In contrast, Starbucks’ recent efforts to lower price involved rolling out a Gold card, which is targeted for “people who really love Starbucks, those of you we see everyday.” The primary privilege of paying $25 for Gold card membership is a 10% discount. Therefore, you have to spend $250 a year (which is about 6 lattes every month) before you are ahead of the game. Barnes & Noble has a $25 similar deal that offers discounts for both online and in-store purchases.
So why charge customers for the privilege of a discount?
This strategy may pass muster in a strong economy: it courts and coddles a company’s best customers. But today, especially for luxury brands, an aggressive pricing strategy needs to go far beyond offering a 10% discount to high volume customers who pay $25. Case in point, yesterday’s earnings report by Starbucks: profits were down 97% and same store traffic slumped by 8%.
In this economy, every company needs to be hyper-proactive about their pricing strategy.
