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3 Discounting Strategies To Maximize Your Profits

This article is the second in the series on Maximising Profits with good pricing strategies. In the first article, we talked about the basics of pricing and the ‘sweet spot’ whilst also exploring three of my favored methods for finding a good launch price.

Be sure to read part one before continuing this article:

The comments I received after the article were very interesting, yes, I read and try to reply to all of them (especially the ones that are thought provoking). Before we continue with today’s article, I want to address some of the issues that were discussed in the comments of the first article (if you have not read it yet, please read that first along with the comments section so that you have the relevant background knowledge for this discussion):

It was suggested that pricing of a product has a lot to do with good marketing.

I totally agree that good marketing can help you achieve a higher perceived value. It can help encourage people to pay a higher price for your product through the art of words. HOWEVER, if your actual product does not match the claimed value on your sales pages, then you will see your refunds rack up fast.

You must know the true value of your products. You must know what customers are willing to pay for your product, and thus we discussed three of my favored methods to figure this out. If your sales copy promised the world, but your product is nowhere near as good, then you really do not know anything about the actual VALUE of your product.

You must know what the customer is willing to pay for your product, the sales page simply helps you achieve that value.

Some contributors have added actual stories of well known marketers getting this wrong and having their payment processing companies suspend their accounts. They really should have hired my advice and saved themselves the headache.

I wrote in some detail last week, some of the very same methods I used to initially price my flagship product: The Online Marketing MBA course. You have to really know the value of your product from your customer viewpoint or you will either be leaving lots of money on the table or worst still, experiencing lots of refunds.

Another issue was Penny pricing, the way to make a price look lower then it actually is.

This was mentioned by a commenter and although I do not want to go into depth with this topic, I do feel it deserves a mention.

I’m sure this is not the exact name for this technique, but it simply involves knocking a few pennies off a price to make it look cheaper. For example, we often have $9.99 as a price rather then $10 as even though it is only a penny cheaper, we still subconsciously feel it is a little more cheaper then a penny under $10.

In the recent decades we have seen more of a $19.95 and the $19.87 type pricing as for some reason people tend to feel the price is closer to $19 than $20 (it, of course, works with 99.95 and other values too). I have seen different schools of thought on this with some people believing the value should end in a 7 (e.g. $19.97), and others saying it should end with a 5 (e.g. $19.95). I have not done enough research to comment on this, so try it out yourselves and let me know.

It was also suggested that sometimes we lower the price of one product to use it as a loss leader for another product, thus we do not need to consider pricing with such products.

This is totally untrue and why so many businesses end up in trouble. If you are using product A as a loss leader for Product B, then the loss you make with Product A is always considered an added cost for Product B. It is a marketing cost incurred to help sell Product B.

If you use something as a loss leader, then it is adding a cost to your business and that cost needs to be quantified and gained somewhere else, or your business is going to have serious cash flow/profitability issues.

Think Asda/Walmart or other big supermarkets. If they discount a product, you can bet your life that they are going to force another supplier to reduce their costs for a few weeks to cover the costs of ‘their’ promotion. (Normally it falls on farmers because they are so dependent on the supermarkets that they have to take all the hits.) Such supermarkets always ensure that any promotion does not cause them extra costs.

Never expect that a loss leader will lead to sales. You can hope it does, but be prepared to cover the costs if it does not. Like supermarkets, you can do this by lowering purchase prices with a certain supplier or raising prices of other products.

Reasons Why You Might Discount Or Lower A Price

OK, so that is last week’s questions covered, let’s move on to this week’s article, which will focus on discounting and how to lower pricing without upsetting customers who have paid a higher price.

There are three main reasons you may want to consider dropping your price.

  • Firstly when your product is in decline.

All products have a life cycle. In the early growth stages there are fewer competitors and thus you can charge a high price. When the competitors arrive, the competition heats up. There are more suppliers to meet the demands, so you often have to lower your price in line with the new line of competition or alternative products.

  • To recreate interest in a product.

The Online marketing world is so fast and fickle that your product could be outdone within the space of a week, trust me I have seen it first hand. Even when demand is good, the attention to your product cannot last too long as people are bombarded with invitations to buy all sorts of other products.

In such cases a short term reduction in price can help recreate attention to your product. I will discuss later how to do this well without making yourself look desperate.

  • To get rid of old stock.

When your product is in decline, you are can still try to squeeze a few last months worth of sales. However, when the product is done and outdated, then it is just like old stock. You have to decide whether to completely dispose of old stock or whether to use it in a creative way to drum up new business. I will also discuss ways of achieving this within this article.

Of course, there is a fourth reason, which is when you have overpriced a product, however, we discussed a little last week as to how releasing a ‘lite’ version of your product would help lower the price without looking like you got it wrong. Please go back and read the first article if you need a refresher.

Discounting Strategies

Even with the different reasons why you might want to discount a product, the methods used are similar and can therefore be applied to all reasons. I have picked three of my favorite ways to discount products, all of which I have used successfully, both within my own companies and with much larger companies that I have worked for.

1. Event Based Discounting

I had the fortune of working alongside the CEO of one of Germany’s leading TV shopping channels. TV shopping, much like online shopping, revolves around fads and latest trends. Whatever may be popular this week, may be totally replaced within a few weeks.

They constantly have to relieve themselves of excess stock and continually offer discounts to customers. However, they have a very clever way of doing it.

They constantly celebrate events. Any event is an excuse for them. Be it a one year anniversary of a particular show, anniversary of the Internet site, or any of the annual ‘themed’ weeks such as ‘Exercise week’ or even a presenter’s birthday. The catch is that each event has its own set theme of discounts. So exercise items will only be discounted during ‘Exercise week’, and clothing items during ‘Summer Fashion week’ or ‘Winter Style week’.

So I figured why not create a similar and consistent series of events for my own business? I celebrate my personal birthday week, my business anniversary, Independence day, ‘Heart of Summer’ week and a ‘My Products For Charity week’ near to Christmas (in this week all proceeds go to charity).

I created a unique series of events that happen every six to eight weeks and allow me to discount my products and attract a lot of attention. The best thing is that my members understand these events will take place, so they either wait for the next one to see if I discount the product they are interested in, or they take advantage of my 60 price drop promise (where I refund the difference on any price drop within 60 days of purchase).

Events help me mask that I am dropping the price of my product. They do not see that they are no longer selling so well. It is all done in the disguise of an event, which makes the customer believe that I am actually doing them a favor and that they really should grab my product fast.

Occasionally such an event will restart interest in my products, so I will return the price back to its original value or occasionally I will leave the product at the new discounted price. It all depends on how successful my week long ‘event’ sale was.

Online I have seen many marketers attempt the same thing by bundling their software together with other marketers for a week long discount (or sometimes 72 hours). This again is simply creating an event to mask the fact that they have to discount their products. You keep the perceived value of the product high, however still sell it at a discounted price.

GoDaddy in particular use this method a lot with their week long 30% off events. Ebay also does the same thing with their ‘free item listing weekends’, essentially discounting their prices, but masking it in terms of an event so regular customers do not get upset.

2. Make Your Best Customers Feel Special

A while ago I wrote a series on customer relations management and segmentation here on this very blog (click here to read the series). One of the key themes I mentioned was based around segmenting your best customers and treating them special.

Discounting your products to these special customers helps to keep them both happy and loyal, whilst also helping raise extra revenue from products they otherwise may not have purchased.

I use an auto-responder, which checks my best customers against a list of buyers for the product I am discounting, so only people who have not purchased will see the offer. They will then be encouraged to buy my heavily discounted product without offending the others that paid a higher price. The by product is that my best customers feel the value from being on my list and that equates to them being my best customers for much longer.

I am sure to tell them that they only have the discount as they have brought a lot of my other products. Everyone likes a discount and loves to feel valued, so it encourages them to support me further and ensure they stay on this special list.

When I use this method I always keep the full price on my sales page for a few weeks, so that when my best customers check, they are sure to see that they really are receiving a bargain. Even if I lower the sales price a few weeks later, they still respect me for giving them the discount first.

3. Create Special JV Relationships

This is very similar to method two, however, I have used this to get close to many well known marketers. The beauty of this method is that you can do it whilst your item is still selling well at full price, but it still gains you extra sales (all be it at a discount), but more importantly helps build or strengthen a relationship with a key joint venture partner.

I would contact a potential partner that  I have been targeting and offer my product at a very special price for THEIR LIST ONLY. No one else will see the offer, only members of their list.

The advantage to the potential JV partner is that customers of their list will feel good about being on their list (they are gaining a discount only because they are on that list, and that is clearly mentioned in the sales pitch). Meaning they are more likely to stay both loyal and active list members. So by helping someone (who would most likely not have promoted my product), offer my product at a special rate to their list, I earn a lot of respect, especially because my products are sold at a much higher rate elsewhere.

We all know the value of relationship in business, and in this case discounting can help to build very valuable relationships.

For example, one of my flagship products sells at $87/month for the six month duration of the course, however I have offered it at a flat-out $87 to special list owners that I have wanted to get close too. That is one sixth of the price it sells for regularly. (I sell via Clickbank so it is very easy to set up buy now buttons at different price points.)

I win because these customers may not have known about me without the owner sending out a discount mail for me, and secondly I win because of the strengthened relationship with the list owner.

Discounting my products has always been a strategic move for me to either increase my sales or to gain valuable new relationships with list owners. Of course guest blogging on sites such as Entrepreneurs Journey always helps to get a foot in the door, however in my earlier days I simply started by sending the owner a free review copy and explaining how I could offer the product at an exclusive discount for their loyal readers.

Try it, because it works really well.

In the last article in this series we will discuss how and when to offer your product for free, and why you should always consider multiple pricing points for your product.

As always feel free to add to this topic or ask questions using the comments below. I will again attempt in the next article to clarify any interesting questions that appear below.

Click here to read part three of this series

Dee Kumar

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