Online discount coupons seem to be all the rage these days as businesses scramble to generate store traffic or new business. In some cases it can be an effective tool. However, the restaurant business is finding out the hard way that daily pricing deals doesn’t always attract the type of customer you want.
The theory behind online discount coupons is that it offers consumers an incentive to try a new place or product at a discount. The place selling the product or service gets the benefit of a new customer and hopes to cover the cost of the discount by generating incremental sales of other services or products….like wine or dessert with a meal at a restaurant.
The problem is discounting sends a powerful message to the buyer that your product or service may not be worth what you really want to charge without a discount. In effect, you’re training the consumer to believe that your product is inferior to other comparable products. Pricing should be managed in a disciplined fashion to support the overall marketing and business strategy. It’s too easy for businesses, when they’re experiencing periods of slow sales to reduce their price. The pain always comes much later when they either try to raise prices or remove the discounts.
Pricing is a strategic business tool not a tool that should be used tactically. If your business doesn’t have a clear pricing strategy then maybe you need to start thinking about developing one so there is some consistency. One of the worst things that can happen is that you change your prices frequently and it has no impact on the business. Then what have you done….sent a confusing message to the market about the value of your service.
A good starting point is to develop some guiding principles on how the business with manage pricing……such as i) will not be priced more that x% below the #1 competitor, ii) pricing needs to generate at least x% of gross margin or iii) lifetime value of a customer will not fall below 0 under any circumstances.
Aligning to some pricing guiding principles will help you avoid major brand problems down the road.