Contrary to popular perception, discount marketing does not only work on the ‘mainstream’ audience. Customers, no matter how high up they are in the value chain, love a good deal and like to compare prices. One study found that there are essentially two ways customers evaluate the fairness of a price – by comparing it with the price they paid for the product earlier, and by comparing it with what others pay for the same product.
The study also found that the way customers find fairness in price depends on how powerful they felt. Those who felt powerful experienced unfairness in price when they pay more for a product compared to others. On the other hand, people who did not feel powerful experienced similar unfairness if they paid more than the previous time.
The reason we are discussing this is because a discount marketing campaign strategy needs to be crafted based on the audience that is being targeted. This strategy includes the kind of discounts that may be offered, the delivery and positioning strategy.
Discounts for powerful customers
These are customers who have the buying power and as a result, are strong negotiators. Enterprise and B2B customers are a good example of powerful customers and as the study shows, such customers compare the price of a product with what others pay. This is because as a powerful customer, they expect the seller to provide them with discounts that are higher than what is offered in the market.
This is the reason why enterprise businesses do not have a marked price on their products or services. By keeping the price confidential, marketers remove the ‘unfairness’ factor that creeps in during price negotiations. However, that alone may not be enough in making the customer happy. The solution is to offer a tiered discount structure to customers. By incentivizing lower prices for higher volumes, businesses can achieve two things. Firstly, this tells customers who feel powerful but may not indeed be so that their purchasing volumes may not warrant a higher discount. But from another perspective, by providing a discount based on volumes, businesses can offer a sense of fairness to these ‘powerful’ customers.
Discounts for non-powerful customers
If you are a B2C business targeting a mainstream population, you are quite likely to be dealing with customers who do not feel ‘powerful’. These are customers who sense price fairness based on their previous purchasing experiences, and it is here that conventional discounting strategies work really well. This involves blatant promotion about the drop in prices compared to the regular price with the help of advertisements to communicate the price change.
Local service provider businesses that do not have an advertising budget to communicate pricing changes may make use of direct mail marketing. Direct mail marketing is an umbrella term that refers to a variety of promotions that are sent straight to the consumer such as print coupons, flyers, booklets, loyalty cards and direct mail. The cost of such promotions is way lower than advertising and is hence more suitable for small businesses. Since such businesses cater to the mainstream audience who are typically of the ‘non-powerful’ category, such discounting strategies appeal to this audience.
As a general rule of thumb, a discount marketing campaign should focus on communicating the “value for money” that the customer receives and not on the pricing itself. From a customers’ perspective, this is more respectable and works well with a wider range of audiences.
This is a very insightful article to me. The idea of power from a buyer’s perspective is new to me. I do believe that discounting is the lazy persons way to market. Discounting is a very dangerous strategy for most businesses. Not because it is inherently bad but because it is easily misused.
Thanks well done.