Tip: Don't Reduce the Price for People Ready To Buy

Tuesday, November 17, 2015

Coupon codes are getting out of control. At the beginning of this year, I called Michael Dell "The Coupon Master." Since then, coupon codes seemed to pop up everywhere - and they're almost always to the vendors' detriment.

Every time a customer eager to make a purchase sees the text "apply a coupon code," a vendor decreases his profitability for no reason. The customer (already willing to make a purchase) halts his buying process and begins a search for a coupon code. Then, one of the following results occurs:

• The customer finds a coupon code: The vendor receives less money than the customer was originally willing to spend.
• The customer doesn't find a coupon code: The customer becomes irritated, believes that the product is no longer worth "full" price and seeks out another offering.
• The customer doesn't find a coupon code: The customer becomes irritated, reduces his valuation of the item but buys the product anyway. Believing that he overpaid, he will forever bear resentment toward the vendor.

In short, the business never comes out ahead. Combine this with the fact that many discount codes are not coupons so much as affiliate codes (that incur additional costs to the vendors), and you wind up with a recipe for disaster.

Here's an image of Godaddy's pricing page. The "add coupon" section is only visible to a potential customer after he adds a domain to his shopping cart (and is presumably willing to pay the price indicated). A tiny bit of searching online will reveal discount codes that reduce a buyer's cost below Godaddy's own marginal costs. In essence, Godaddy's mistakes aren't just costing itself potential profit, they are actually reducing the firm's savings.

For a long time, I thought that an over-reliance on couponing was the epitome of stupidity. I was wrong. A local training firm has upped the ante and found an even more efficient means of using discounts to hasten its march toward an inevitable bankruptcy.

Here's the order page for a rival to the firearms training firm that we looked at last week. I didn't have to rifle through the page too long before I saw something disturbing. Want to take a shot at finding the issue?

Hopefully, lasering in on the error was as easy as shooting a fish in a barrel. The firm's marketing team was clearly shooting blanks when it designed the website. Not only did the business announce that a discount was available to every potential customer, but it even told everyone where this discount could be found. Even the laziest, most apathetic consumer could obtain a large discount in seconds.

If that weren't enough, rather than using actual discount codes, the firm chose to provide the discounts via Groupon, a site that charges vendors a 50% fee on all purchases. Rather than providing the entirety of a discount to its loyal consumers, it chose to give much of its effective discount to a third party!

This training firm can certainly stick to its guns, and keep marketing their services improperly, but I think that the business should correct its mistakes. It's not like anyone is sticking a gun to the owners' heads. They should stop this discounting madness immediately and find a more bulletproof marketing strategy.

Are you looking to increase your profitability? I don't just take potshots at firms for no reason. I'm here to help companies make more money through better pricing.

While I enjoy adding puns to my pricing essays - I'm really much better at analyzing pricing strategies. Contact me for a private consultation. Oh, and if you're in the software field, don't forget that I wrote the book on software pricing.