Know-How Exchange : Customer Behavior

It's difficult to change a practice that has become so ingrained. The few successful instances with which I'm familiar started by offering "bonus" services or products instead of discounts. They made them high enough in value that they probably didn't save any money, but at least they retrained their customers to expect that some/many/most promotions are not blatant discounts, and they still kept some of the discount promotions in the mix -- albeit much less frequently.

In some product categories it's just not possible though. An example: soft drinks in supermarkets in the US. There's a soft drink on sale at a discount price every week. For the most part the two market leaders -- Coke and Pepsi -- just alternate weeks and change the sizes and packages being promoted (cans/bottles). If either one stopped, even for a week, the other would grab the opportunity to promote more often.

There has been a lot of work done analyzing the effects of price and promotion, and one of the general conclusions is that once you teach your customers to buy on discount (because you offer discounts on a regular basis), it's very difficult to retrain them.

Sorry there isn't an answer that leads to a brilliant solution to this problem, but better you should know this now than after you've made your investment decision counting on being able to change things.

Is your goal to raise prices throughout the year AND discontinue the regular deep discounts entirely? Would you be willing to smooth out the deep discounts and instead offer "off-season" discount services (ski tune ups in the summer, roofing in summer, etc.)?

JC Penney trained their customers for discounts/coupons, tried to shift to more "everyday pricing", and had a negative response. They're now going back to offering targeted discounts.

If the only reason people are buying from the business is discounts, then that's not a strong USP, and is likely to be painful to change. If you can offer a premium service to a subset of your customers, with a strong USP, then you might be able to wean some of the clients to this offering, but it'll need to be branded differently (so not as to try to be a high-end version of a low-end service).

Let's have a look at this from a different angle. You have a business with customers. Some of those customers will bring you more profit than others. The key to your success is finding out who they are - and targeting them. They drive 60% of your profits. With a hundred customers one more like that means you increase your profits by 6% not 1%. That customer is worth having.

No discounts, no rat race, no whinges.

Because that is the 'why' to utilizing Jay's last paragraph. What do they like, what do they *not* like. What is their pinch point and why are they choosing you time and time again in the face of the competition. There's one thing that is moving their decision before price even comes into the equation.

For those who return often, you could have a subscription service/membership club that gives them the level of service they want (several times a year with the costs spread out over the year not in one lump). This gives you two things: customer retention and a steady income. It also allows you to schedule them for times when there aren't pressures to do other things.

What's more it might suit some of the people who want discounts because they don't have that sort of money all at one time - but could afford $50 a month instead of $600 all at once. That could be one reason for wanting a discount. It would mean that they get their services without having to worry too much about paying for it.

The other side of the argument is how good are those customers who always demand discounts? Are they costing you money??? In my experience those customers who demand lower prices aren't good customers to have because they are always wanting more for less. Getting rid of the bottom 20% of them will actually SAVE you money. Sure, they are work - only wait! Why are you in work at all? Are you the lorry driver who takes the job at a price that won't even pay for his fuel - just so he gets out on the road? That's no way to run a business.

So keep on with the discounts, making sure that it *doesn't appeal* to the people who are going to take you for a ride. There will be some emotional trigger that they will balk at. Find it, and your profits will go up 20%. When I did it (unwittingly) with our building business in the UK our profits leapt 35%. It was miraculous. Just because we weren't spending all our time keeping customers happy - who couldn't be kept happy. They always wanted that little bit more. Anyway, your profit on the job vanished four days ago. A waste of your time. Leave them to others - who if they have any sense will leave them to rot too!

In combination with the other tactics, you should have a pretty robust company.