We’ve all had that moment when we buy that new something just to find out a week later that the price dropped fifty percent. It’s so frustrating. And studies now show that these deep sales can significantly decrease your profits.
Eric T. Anderson and Duncan I. Simester recently published a study for Kellogg School of Management that shows that dropping prices antagonizes your loyal, returning customers and causes an adverse reaction. Those who buy from your company when the product is first launched tend to be the people who love your company. When the price drastically drops a month later, customers feel taken advantage of, which leads to a “boycott effect.”
“This helps explain why managers are so concerned about adjusting their prices,” Anderson said. “You risk antagonizing your most profitable customers.” So how can you attract new customers without losing your best ones? Here are some marketing tips that pull in new customers without chopping prices.
Use Social Media
Offer a chance at a free product or service if customers “like” your page on Facebook. The fact that only one, or a few people will win will stop your customers from feeling like suckers for paying full price right before the promotion. You can also use social media networks to create events that can draw in new customers without discounting your prices. You can organize an event to launch a new product or service, or a new adaptation on your product or service – offering them the “first look” instead of the “lowest price.”
Reward Returning Customers
With the rise of the age of Web 2.0, it is easy and common for people to share news about their favorite brands. If you encourage your customers to do this, you can gain new customers and reward your loyal ones that have been with you longer. When a new customer places an order with you, signs up for your course, or books your service etc., allow them to add the name and email of the person that recommended them. Let your current customers know that if they recommend X number of new customers, they will get a deal from your company.
Make Discounts Rare, and Predictable
If your loyal customers know that you have a sale once in the summer, and once in the winter, they won’t resent the fact that they paid full price for your product because they can justify not wanting to wait. If you’re open about when you’re going to have a sale, and give people plenty of notice, they won’t be condemning you for pulling a fast one on them.
Make Your Promotion Something New
Offer a great deal on something you haven’t sold before. This will ensure that no one will resent the fact that they paid more for the same thing. You can make the discount for a short period of time (i.e. in the first week of your product launch, sell it at a discounted price), or you can make the discount for a limited quantity of products (i.e. the first five hundred sold will be at a discounted price). People will justify paying more for being too late rather than too eager.
Reverse the Deal
Have prices start low and get gradually higher instead of the other way around. We see this strategy a lot in ticket sales for concerts and events. Returning customers will be on your mail list and they will hear about the deals first. If they have any friends who they think would be interested in the offer, they will let them know ASAP so they can think about purchasing before the price goes up (assuming they are, in fact, a good friend).
If You Must Discount, Think Generally, Not Specifically
It is better to offer a “50% off if you spend X number of dollars” deal, than to offer a “50% off X product/service” deal. If you decrease the price of an individual product, you risk decreasing its value in the customer’s eye. You don’t want your customer thinking that those pants they bought for $100 last week are only worth $50 now. If you offer them a deal that doesn’t involve the value of the individual product, like a discount per dollars spent, the customer will see the deal as a reward for buying from you instead of a regression of value.