Updated: May 13
This text is from our consulting firm's latest 321 Biz Development episode found on 18 podcast platforms. There is too much content to write for this article, so readers are referred to the podcast for the complete story.
We always communicate that big corporate marketing and advertising is vastly different than small business marketing and advertising.
It's very common for small businesses to copy big corporate marketing and adThe vertising strategies. One strategy which works for big corporations but miserably fails for small businesses is offering price discounts.
There are several factors restricting small businesses from capitalizing on the power of discounting to attract new customers.
The main reason why pricing discounts work for big corporations is because they have lots of reserve funds IF they lose money on the original price compared to the lower price. For example, big corporations may set aside millions to make up for the offering price discounts. The math looks like this: 1M items sold for $900 (a $100 discount) instead of $1,000. The revenue at $900 at 1M items is $900,000,000. Before the discount, only 850,000 items were sold at $1,000. The revenue at $850 and 1M items was $850,000,000. So, a discount of $100 generate $50,000,000 extra dollars. But suppose the $900 price (a $100 discount) only generated 900,000 sales. The $100 price discount would generate at $40M revenue loss ($850M - $810M) compared to $1,000 pre-discount price. In the last 900,000 item sold at $900 example, the $40M dollar lost can be seen as a $40M marketing expense. Small business owners cannot take a $400,000 loss or maybe even a $40,000 loss discounting a product or service by $100.
Pricing discounts are theoretically supposed to attract more customers. But often with what happens with small business is no or not enough new customers are added and the small business owner still has the same or maybe greater business expenses.
Of course, advertising price discounts costs money. Small business owners must pay radio stations, television stations or magazine companies to announce price discounts to the public. If no nor not enough customers are added through offering price discounts, then the entire idea can be called a triple whammy, which means:
The small business owner wanted more customers, but it did not happen.
The small business owner receive no nor not enough new customers to break-even.
The small business paid an advertising or marketing company to end up with no nor not enough customers.
The other pain point with discounting prices is competitors. If competitors also run ads offering discounts, then small business owners are competing against each other for the lowest price. The customers are enjoying the pricing wars.
Small business owners are fighting endless battles trying to attract customers by lowering prices.
The first takeaway from the article and podcast episode is small business owners should never spend significant advertising dollars to find new customers or clients. The only entities benefiting from advertising discount prices are advertising and marketing companies.
The second takeaway from the article and podcast episode is mastering a sales systems minimizes or eliminates the need to discount prices. Mastering sales systems is part of the 321 Biz Dev, 6-hour sales system class.
321 Biz Dev recommends small business develop affordable, in-house sales systems and business development programs to drastically reduce motivations to discount prices.
If this episode/article provoked some deep thought about improving your sales performance, please do not hesitate to contact me, Rick Nappier, at 726-999-0999.
Interested parties can click here to visit our website. Then, click the Questionnaire tab to complete the 5-minute questionnaire so 321 Biz Dev can learn more about your current sales situation or learn about your current or past experiences with trying to improve sales performance. A 321 Biz Dev specialist will contact you within two business days to review your responses.
We hope your enjoyed today’s post and linked podcast episode. Please check out the podcast episode for a lot more content on this subject matter.