Why Low Prices, Discounts & Deals are Deadly

Some companies use them all the time.

But if price and discount was all you have to offer, you are either limiting your potential, or killing off your business.

Laura Ries explains:

Coupons, Groupon and Cocaine

These days marketers are going in exactly the wrong direction.

The recession has caused a lots of companies to panic. And when companies panic, they print coupons and throw up sale signs. Look in your mailbox, your email inbox or your newspaper and you will see what I mean. Everybody is having a sale.

But does this coupon-sale-discount strategy work?

Yes and no.

Yes, in the short term coupons, sales and discounts do work. Discounts bring in customers and ring up sales. But the short term is not the only thing that needs to be considered when building a business and brand.

Coupons are like cocaine. The first time you do it, it is the best feeling in the world. But over time it takes more and more of it to achieve that same feeling. And then you need it just to function. You are a cocaine addict. From the mug shots of Lindsay Lohan and others we know how personally destructive cocaine is, yet we fail to realize the similar brand-destroying danger of coupons.

Think about it. The effects of coupons, sales and discounts are exactly the same as cocaine. The first time you get a discount card in the mail you are elated! Wow! 10% off, 20% off, 2-for-1! You might rush out to the store and take advantage of the offer. But next time you drive by that store you think, I’ll just wait and see if there are any more coupons coming. Next time you drive by that store you get mad since you forgot the coupon. Eventually you refuse to step into the store without a coupon.

Try checking out of one of these stores without using a coupon and even the sales clerk looks at you like a pathetic loser. Nobody pays full price here what’s the matter with you! She may even reach down to pull out a coupon of her own to give you.

Coupons and discounts do one thing every well. They teach consumers that your regular prices are too high. A lesson consumers learn very quickly. Once they think your regular prices are too high, they won’t buy from you until given a discount. And desperate companies are too quick to oblige.

High-low pricing is devastating to the consumer’s opinion of your brand. It’s also devastating to your bottom line. If you are giving away the merchandise, you aren’t making any profits.

You might be thinking in this economy what other choice do I have? My competition is doing deals so I have to do them too.

Wrong. Its peer pressure. But Mom, all the other kids are doing cocaine so I have to do it too. No parent would buy that argument. And no marketer should either.

What is even scarier is that there is excitement surrounding the rise of coupons. Look at the recent love affair with Groupon. A recent front page article of Advertising Age magazine proclaims “Suddenly, Everyone wants to be on Groupon.”

Suddenly, everyone wants to damage their brand by undermining its position with Groupon! Great.

Many marketers make it even worse by thinking that Groupon can help their brand and don’t acknowledge any downsides. Instead of a Valupak delivered in your mailbox, Groupon is an electronic coupon delivered via the internet.

It is new? Yes.

Is it a cheaper form of discounting? Probably.

Do consumers like discounts? Yes.

Do discounts build your brand? No.

Do discounts damage your brand? Yes.

For local and small businesses, the rise of Groupon is seen as the obvious answer to the decline of the Yellow Pages. The marketing dollars for local businesses used to be predominately spent on a listing and an ad in the Yellow Pages. And for decades, this approach was enormously effective.
Of course, today the internet has made the Yellow Pages obsolete.

So how do you build a business whether you are Joe, the Plumber or JC Penny? It comes down to basic marketing philosophy.

Do you build a brand by:

1) Standing for something in the mind of the consumer?

2) Offering coupons and discounts?

My answer should be obvious, you build a brand by standing for something in the mind.

If you are Joe, the Plumber you might be the leading plumbing company in your area, you might be the 24-hour plumber focused on fast service, or you might be the high-end plumber focused on custom work, or you might be the plumber focused on commercial jobs or you might be something else that is focused and clear.

In any case, Joe needs a good name and a strong, unique visual. He needs to verbalize his focus so his customers can pass along his message. He needs to put his message on his truck, website, business cards. He may also need to advertise his message and credentials.

Many small businesses today are desperately looking for an easy replacement to the Yellow Pages. So they have jumped on Groupon as the Holy Grail.

I’m sorry to tell you, but Groupon isn’t the messiah as the hype promises. To me it looks more like coupons in sheep’s clothing.

Coupons don’t build a brand, they destroy it.

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