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The Problem with Discounting

Lesson 8 from: Value Pricing & Business Models for Creative Entrepreneurs

Tara McMullin

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Lesson Info

8. The Problem with Discounting

Lesson Info

The Problem with Discounting

Let's talk about the problem with discounts. The problem with discounts. I get asked all the time is it okay for us to have sales? Let me tell you a little story. Back before I was the manager for Borders I was a supervisor for Kohls. And Kohls, at least at the time, I don't actually think it's like this anymore but, at the time, Kohls prided itself on having 80% of the store on sale at any given time. And so what they did was train their customers to expect to never pay full price. So what you get is this nasty cycle of merchandise sitting around your store longer than it needs to. Yeah maybe somebody would love to buy that brand new sweater but they know two weeks, a month from now it's going to be 50% off. Who in their right mind, well plenty of people in their right mind, but which of Kohls customers in their right mind, which of this very value price conscious customer would purchase something for full price when they know darn well if they're just a little bit patient they can ge...

t it for 50% off? So they would have merchandise sitting around, and sitting around, and sitting around because people wanted the best deal possible and they were willing to take that gamble. I see something very similar happening in creative businesses where business owners are training their customers to expect things at a discount. Or they're training their customers to expect these lavish bonus packages, or add-ons, or this extra thing, or that extra thing. And when you train your customers to do that you can't ever train them back or it takes a lot of time to train them back to paying full price. So you're not giving people the opportunity to try this at a discount and then pay full price later if there's always a sale. You're only ever training them to buy at a discount. Groupon is another example of a business that ran into a problem with this where it started off as a fantastic idea. I got started on massages because of a Groupon way back when (laughs). However, they were finding out that most businesses actually didn't like what would happen. They'd have this influx of customers who where willing to pay 50, 70% off but would never, ever come back, would never pay full price. They were going from coupon to coupon to coupon to coupon and so you have to ask yourself is that the customer base that you want? And here's the thing. There's nothing wrong with having a business that's intentionally low end with making choices that are intentionally low end that set you up for success in that market. The problem becomes when you start making choices that are mixed. When you mix high end luxury with low end prices. Or you mix high end luxury with branding with low end quality. You start to send mixed messages and that's what I see happening an awful lot. People have really high touch services which means they're spending lots and lots and lots of time emailing, calling, just lots of time with their clients but they're not charging for that time. That time isn't accounted for and that's when they start getting burnt out. That's when they start hitting that micro business earning plateau. So (sighing) how do you know if you're using discounts as a crutch for your business? Well you know you're using discounts as a crutch for your business if your clients or customers are constantly asking you when the next sale is or you're only getting new customers or clients when you offer a discount or when you're having to put together lavish packages to bring down the overall perceived price of something. That's when you're using it as a crutch. Lower prices aren't always the answer to getting more sales. Most of us don't want customers who make buying decisions based on price and so if you are constantly feeding in to customers from making a buying decision based on price you're using discounts as a crutch and that's gonna come back and bite you in the butt. (laughing) Tricia, she's just saying I hate giving discounts. I never do it. I don't do my best when I give a discount even if I try. It just actually makes me hugely angry. Well don't get angry Michelle. (audience laughing) We know what you mean. Awesome. Okay so what's an appropriate reason to discount? Lots of things. I like to think about discounting, or the appropriate time to discount, as an event. What makes sense in your business? You wanna discount, you wanna have a sale? You wanna throw out a coupon? What do you wanna celebrate? What do you wanna have a party about? If you've got an excuse to have a party you probably have an excuse to have a discount. You don't wanna discount just 'cause you need more sales this month 'cause the rent's not going to get paid and I hope none of you are in that situation honestly. But that's a bad time to discount. A good time to discount is whoo I just paid the rent. Here's a coupon! No, not really, but that would be 12 times a year. That would be horrible. But no, seriously, you've got something to celebrate? You're on CreativeLive and you wanna have a sale. Great. You have a birthday and you wanna have a sale. Great. You have your wedding anniversary and you wanna have a sale. Great. Don't do it for everything but if you can come up with that kind of reason to celebrate. Maybe you're retiring a collection. Like I know Giant Dwarf just retired all of her... You would know her from her starlet starlat? Starlit? Starlat? Crowns they're the glittery star crowns that you've seen celebrities wearing? She just retired that line and she offered a discount to get all the stuff out and as a celebration of this product that has been immensely successful for her. That's a great reason to have a sale, to offer a coupon, and to have an extra incentive. So it's not that discounting is bad. It's just that you need the right occasion for it. You need something to celebrate. That is a great guideline. Yeah. How about for new product launches? Sure. A new course, a beta testing-- You're celebrating! Yeah. Yeah, absolutely. Absolutely, one thing with betas that's a really good question because it's a little bit different. And then you're less talking about a discount than you are talking about a trial price. Mmm. Okay? And there's two schools of thought on this. Absolutely you could do a trial price that's like a no brainer. Like you would be stupid not to buy this right now, right? You can do that but only if you are making absolutely certain you are getting the right people in that program. They cannot be people who are only buying because of the price. They have to be the people who are going to be the best testimonials, who can give you the most constructive feedback, who are gonna tell you well I really liked this. I didn't like this and can you add this in? If you get those kind of people in you can absolutely give them the no brainer beta price. The other way to do a beta is to make it more open where you're attracting more just of your regular Joe Schmo Jane Schmo (laughing) clientele which is great. Love them. But you set a price that you can say I know this program works. I am excited about this and it's the first time running it so I'm running it at a discount. This is an introductory level price. We will never repeat this so if you want in the time is now. But then that price is as much of an experiment as the full price is too. So you say this is what I expect the full price on this to be. This is the introductory price for now. It will never be this again and then that way you're getting feedback on the price without actually offering the price at a higher price. Does that make sense? (audience murmuring) This is gonna be $397 but first time through special offer it's gonna be $1.97. Yes. But they know what the value is so they can give me feedback after they've experienced it. Would you pay $397 for this? Cool. Got it. Yeah. Absolutely, yes. Really, really, really good question. What other questions do we have about raising or lower prices 'cause we have plenty of time and I think I am about at the end of my what I needed to say about raising and lowering prices. If you have found yourself using it as a crutch how do you change it? How do you change your outlook and your philosophy? Yeah so I think that great question Eric. I think there's one, set the expectation for yourself that this is gonna take time. This is not something that happens overnight. Two, I would look at some other branding positioning things. What is currently influencing your price right now or what is currently influencing the way your customers perceive your brand right now? What is that overall story that you're telling? And start looking for ways to up your game on that story. Maybe it's a new logo. Maybe it's a new product photography. Maybe it's a new sales copy. So that the whole story is starting to become richer, becoming maybe more luxurious. Maybe it's just becoming more in line with the way you see your product and then you can start to pull back on those discounts because now the discounts are going further, and further, and further away from the way people are perceiving your brand. But anytime you're trying to adjust that story when you're trying to change that perception be gentle with yourself and know that it's going to take time. But yeah also just look for all those details. The details that you can change, that you can affect, that you can massage a little bit so that everything is just more aligned so that everything makes sense together so that there's a consistent story being told. And that will just start, over time, to reprogram the way people think about the prices that you offer. Yeah, what about you guys? Robyn. So if we, when we offer programs, we offer bonuses with the programs and we get a lot of contributors and at what point is too many? I mean we have quite a few. Yeah. Yeah this is a really common problem. So the idea is you've put together this great program, you wanna get promotional partners onboard, you wanna help spread the love and you wanna make this package as irresistible to your right people as possible. Is there a point when too much of a great thing is too much? I think that there is. I can't draw a line for you but I would say when (scoffing) I have literally seen sales pages where I feel like the bonus content is as much or more than the product itself. I think that sends the wrong message. I think that says this program isn't worth as much so we're giving you all this other stuff. Instead of feeling like a free bonus now the bonuses kind of feel like what you're actually paying for. So that's one thing. You know just look at it. Relatively speaking does this make sense? Does the amount we're giving away actually make sense with what people are paying for? Is everything relevant? Again I see a lotta times people are giving away bonuses that just aren't relevant. Are the bonuses part of a bigger story that you're telling? In that case I think you're good to go but if they're not I would consider editing them out. Yeah and then I totally get wanting to get promotional partners onboard. I totally get wanting to spread the love and, you know, you guys do great with launches so all that bonus material helps other people out as well. Helps those providers out as well. But there's other ways to do that too you know. Maybe that happens throughout the year or maybe you surprise people with a bonus that they weren't expecting. And you talk about it. Maybe you talk about it on Twitter. Maybe you talk about it on Facebook. Maybe you just talk about it in the community and you say hey we arranged for you guys to get this great bonus, surprise! That stuff can feel even better than just trying to get trying to make your offer so irresistible that people are definitely going to buy it. So I don't think there's a hard and fast line in the sand but I absolutely think you can give too much of a good thing. We give a lot of content and we actually started with the course that's happening now is six weeks. When we first did it it was four weeks. So there was so much content that the designers who were taking it were like whoa (laughing). We need some extra time to work on the material 'cause we just keep providing and so it was good for us to extend the amount of time so they actually have implementation weeks. But then I was thinking we have bonuses on top of all this and sometimes in a week we'll have three calls. Two from bonus contributors and then our group call and I was like is that a little too overwhelming for them? Yes. Is that too much? (laughing) So one thing that happens here. Something that we always wanna be thinking about with pricing is how does our price and how does this value make people feel? And unfortunately even when your pricing is right, your offer is right, your message is right, the story is right if you're actually delivering too much the feeling people can be left with is a little bit of well definitely overwhelmed. Also a little bit of shame. If they can't keep up. if there's just too much stuff. If they've bought a program from you, and another program from you and they've never used a single bonus because it's all they can do to just keep up with you there's some shame that starts to come in. And that was something I realized early on was that when I was hearing from customers that were feeling overwhelmed I wasn't helping them. I wasn't doing a service to them. The service is really creating something that allows them to get the value out of it that they want. And when people buy your program they buy it for the Flourish and Thrive program. Yeah. They don't buy it for the bonuses. They look good, they sound good, but that's not why they're there. They're there because of what you've promised them in the program that you offer. So it's your job to do everything you possibly can to make sure that people are getting that value out of it because that's what they've paid for. That's what the price is based on. The other thing that relates to that with pricing too is that if you're not priced high enough that people aren't taking like a putting time on their schedule. If they're not allocating a certain amount of their week to get this done because the price isn't high enough because they didn't expect that much work that will play against you as well. I mentioned my High End Mastermind program earlier. That program is an hour and a half q and a call a week, or coaching call a week, and a 30 minute audio with a homework assignment. It's very very little. (chuckling) And it is on purpose because I only want people who are going to do everything at least in a reasonable amount of time and I only want people who that's all they have time for. And they're willing to set aside that much time and no other time 'cause they're people who are in the middle of thriving businesses, they're people who are moving and shaking and they want to make a big investment. They want to move their business forward by leaps and bounds but they've got three hours a week. What can we get done in three hours a week? Well we can get this done and that's all I'm gonna give you. I'm not gonna overwhelm you. I'm only gonna give you what you've asked for. That's worked really well for me and I've seen it work really well for other people so I think that's something to consider. That's great yeah. We get so excited about wanting to provide so much. It's a serious problem. (all laughing) It is, it is. Yeah, Sasha. Well I have a question but I'll just piggyback on that. I took a class called Teach Now about online teaching and that was one of the major takeaways that I had was don't overwhelm people and that's one of the worst things you can do. But yeah it's a service to create material that is digestible and feels good. So that was like a message that I heard so much. So a question about this. I sent out an email today about an early bird discount on my tiger trip and I mean I just I mean first of all there's a question of an early bird discount. How is that perceived? And second I really, as I wrote the email, quickly this morning before coming here it was like do I say how much the discount is in the email? Is there some sort of affect on the perception of this experience if I say, you know, register before February 28th you get $200 off? Or do I leave it vague? Or? I chose to put it in there-- Uh huh. 'Cause I think people appreciate information. Yeah. But I just really was asking myself like-- Yeah. What do you do? So, first of all, early bird discounts for me that's a time to celebrate! (laughing) So that's totally cool. I'm perfectly fine with early bird discounts. I think the thing with early bird discounts is they need to have a finite beginning time and ending time. They need to make sense in terms of like I don't know why you would have an early bird price that is 50% of your regular price. That doesn't make a lot of sense to me. Maybe there's a time when it does but, for me, it doesn't make sense. Make sure the percentage off and dollar amount off makes sense. Now in terms of how do you announce that? Or do you announce that? Think about the story that you want to tell. When you say by February 28th well, first of all, that's great for you because February's a big month for you so you're already telling a story about February the month of love. So that end date is perfect. But when you say $200 off you have to expect that your clients are going to say, or that your prospects are going to say, alright well if the early bird is $200 off how much is this? Okay, now if you think for a lot of them that's a positive question like oh maybe I can afford this. Maybe I thought I couldn't afford it and I can. Then that's the time you want to do it. If you think instead, oh gosh, they're gonna be so scared of the price (chuckling) if I tell them it's $200 off than that would be a time not to do it and then use the curiosity of oh I wonder what the early bird discount is. Use that to get people through to the sales page where you can make a more thorough account of what they're actually getting and set them up for a price that makes sense. So, it is, again it's about how is your customer going to perceive this and what story do you want to be telling them? Does that make sense? It does and I feel like I'm still figuring it out that I don't know yet. Sure. So it's just like it was just this morning okay get this out here. Better to do it than not, you know. Absolutely. And that is a very fine thing to do. Remember one of the themes for these three days is experimentation. So this is a case where you can learn from this experiment. You don't have a control in this case, which is fine, but you wanna pull out and see is there any anecdotal data that you can use to inform your decision in the future? Did you get some emails from people? How many clickthroughs did you get? What was the open rate? What was the subject line you used? And how does that stuff all move together so that you know for the future well I could change this variable or I could change this variable and I could tell a different story. Mmm hmm. Okay? Mmm hmm yeah. Cool. Do you have any questions from online? Disasara wants to know what about targeting discounts to current customers like a loyalty discount type program? Good, bad, what are your thoughts? Yup, let's celebrate loyalty! (chuckling) Absolutely I think loyalty discounts or programs are great. I think it's a great thing to build into your email. Autoresponder series if you have one for new customers so say someone buys something from your shop or through PayPal there are ways you can get them automatically, with their permission, added to a list. Maybe 10 days later, or a month later, you reward them with a coupon. Hey thanks so much for buying last month. I really appreciate it. I thought you might need something new. Here's a coupon for free shipping. I also think, in terms of loyalty programs, and this definitely pertains to other things as well but loyalty lends itself really nicely to value added discounts. So instead of taking money off you throw something extra in. Free shipping is a great example of this but it also might be buy a necklace get a free pair of earrings. It might be buy a necklace get it gift wrapped. There's all sort of different ways that you can add value as opposed to taking dollar amounts off. And so anytime you can do a value add with customers you know are already itching to buy that's a really great thing. From VictoryGirl here. VictoryGirl is clearly in the coaching business, I'm assuming, saying the main concern is that for those who are charging too much for coaching services the small business owners who may be struggling already. And she's saying how about the reality that if she charges a business too much for the coaching that she knows they need they simply don't have the money to implement it so she loses the opportunity? Well two things about that and it's a great question. It's certainly a fear that many people have so two things. One, you need to build products or services into your business that are more leveraged which we're gonna talk about tomorrow. But leveraging or building products or services that are leveraged or more leveraged allows you to serve people with the means that they have at a much lower cost without you doing damage to your business. Or just even damage to your bottom line. So look towards leveraged offerings. The other thing is, I think, we need to (scoffing). We need to reframe the way we think about this a little bit. I mentioned affordability earlier and affordable is a word that I really, really dislike. The thing with business owners is that when you're marketing directly to another business owner, so you're in b to b sales, the business owners who are going to be your best clients have an investment mindset. They don't see a transaction ever as losing money. They're not giving up something by giving you money. So they may be willing to take out a loan. They may be willing to put it on a credit card. They may be willing to pay you in a payment plan over time but that doesn't bring down the value or the price of your service. I am not, in any way, suggesting that we all go into tons and tons of debt to build our businesses. I am not suggesting that at all so. (laughs) However, many business owners in getting started do put something on a credit card or they do take out a small loan. Just because we're building bootstrap lifestyle businesses it doesn't mean that there isn't something to invest as well. So the question of affordability while definitely something to think about, something to consider, something to work into your business model, is not something I think you should (sighing) compromise on. Touch on this a second-- Okay. But Didi wants to know so what do you do if you're in a situation of your paying rent idea and you're starting up your business, you're starting up your company, if you don't do discounts then what do you do? Oh you do better marketing. (laughing) And when I say better marketing I don't mean lots of promotion. It may not be promotion. Marketing is people, purpose, position, and promotion. And so you may need to look at ways to connect with more people. So those networking events we mentioned earlier. You might need to go to more networking events and get clients the good old fashioned way which is palm to palm, smile to smile, talking to people about what you can do for them. You may need to ask for referrals. So you say this is what I'm doing right now. You email your 20 closest friends and you say I'd really love if you know anyone who has this need, has this problem that you recommend my services to them. So referrals, networking, discounts. If you are building a customer base out of people who came to you for a discount you're going to be building the wrong customer base. You really want to be building a customer base of people even if slowly, even if it just starts in as a trickle, on people who really value what it is that you're offering. Who really need what you have to offer. So echoed a question about that. About what you do when you raise prices and you're not attracting those clients with the value who normally spent more money. I think we've answered that one. But MissRoseTwo is saying what if your competition is offering a product that's basically at an unsustainable price but you're trying to compete with them? Yeah you don't worry about them. That's the answer to that question. (laughing) Similar to the designer who asked earlier you find some way to get yourself out of that market. You differentiate yourself with the materials that you use. You differentiate yourself with your branding, with your story, with your product photography. You differentiate, differentiate, differentiate. Tomorrow I'm gonna talk about a concept from a woman named Millifent Merchant. The concept is onlyness and onlyness is this special something you have. The special skills, the special passions, the special experiences that you have that make you unique. And without getting too touchy feely about it all of our businesses have onlyness as well and so competition can be something we can essentially render moot. We don't need to worry about it. We can remove ourselves from that situation and put ourselves into a better situation and so that's what I would highly recommend. If the problem is you know you're being undercut by other sellers on Etsy get off Etsy. If the problem is you're being undercut by the circle of colleagues and friends that you've built up online it's time to find new colleagues and friends online. Or it's time to tell a different story so that those people think of you differently. You can always change your market. You can always move around and, in fact, that's what we're gonna talk about in the next segment. We're gonna talk about just how big the market is. We touched on it earlier. We are really gonna dive into it next. Another one for you. PixieFashion says I often offer an online coupon code when I do conventions and trade shows if a customer buys a certain amount. I figure this will get them to my online store. Is this a good or bad activity? I think it depends on whether you are rewarding the... So it sounds like it's wholesale. Wholesalers, buyers who are buying wholesale, can be a little twitchy (laughing) about you also selling retail. So if that's what the question is if you can get your wholesale buyers to somehow come around to your retail store? That's not gonna happen. They don't love that. They view you as competition. So I wouldn't do that. If the question is can I get people who've bought in person at a retail show back to my store with a coupon? Yes, I think that goes back to the loyalty idea and loyalty is definitely something to celebrate. Now what about our students? What have they been thinking? Yes? I had a question. So what do you think about referral discounts? Or should it be similar to like peer to peer marketing or have people help you find other clients and they get something in return? That would be a price discount. So like their reward is a discount on their next service? Yeah or something they've already purchased. I wouldn't do it on something they've already purchased. I might do it on something that they would purchase in the future. I think the thing with that is we overestimate our need to incentivize people to refer to us. Right. Most people don't refer because they get something. They refer because they love you so much that they want other people to know. Most people want to help us succeed or most of your customers want to help you succeed. So tap into that. That adds a value in people who are going to refer you is much better than kind of attracting people who are going to be excited about referring for a discount or for a reward. Yeah, yes, go ahead. Okay so getting off Etsy is sometimes easier said than done. Absolutely. (laughing) I always have to like practice that. Obviously, I'm looking to rebrand in a different direction but have, for the last three years, built up a clientele off of that site so that's how they notify me or come back things like that. How do you sort of transition your existing customers over to this new? Email, email, email. Yes. Do you have an email list? I do. Excellent, that's how you do it. You talk about it. You say I'm moving off of Etsy or I'm gonna be on Etsy but the best place the place I'm gonna be putting the new stuff, the new collections. Give them a good reason-- Yes. To shop somewhere else and communicate to them about that through email. And there was just a great CreativeLive program on email marketing too with Jeff Goins so-- Yeah. You should check that out too. We're interested to hear about how our jewelry makers and other people who are working in craft areas because people do put a different value on things and sometimes it's hard to know what your customer is actually going to value your work. I mean I think that's the challenge that we're trying to address here. Absolutely. I was out with a friend recently she was looking at buying a jacket which I thought was really nice but she said the collar was, well I think it was squirrel, but she said it was otter. Whatever it was she wouldn't buy it because to her the value was she wanted something real, more luxurious and she was much happier to pay more. Peoples' different perceptions and different values do change. Now Tara what are we gonna talk about when we get back? When we get back we are going to talk about just how big the market is. I alluded to there being a coffee example coming so brew up some coffee, sit down. Whether it's a cheap cup or an expensive cup I don't care. We're gonna talk about the whole market and how it relates to you. I'm gonna give you some serious homework to do tonight in the fourth segment as well and it's all gonna be about making your choice to price the way you wanna price. Tell the story you wanna tell.

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