Discounts: The Vicodin of internet marketing

Ian Lurie Feb 15 2011

Discounts are the Vicodin of internet marketing

I’m not a fan of discounts as a core marketing strategy. Use them once in a while? Sure, that’s fine.

Use them too often, though, and they’ll kill your business.

See, they’re an addictive substance.

An aside: Vicodin, addictive stuff, and why this matters

Four years ago I ruptured two discs in my back. They sent my whole nervous system into a state of higgledy-piggledy. The doctor gave me a bottle of Vicodin to help me stop whining “ooooh it hurts waaaaah”.

I was pretty desperate at that point, so I took a half dose.

Weeeeeeee.

My back still hurt, but I no longer cared. The entire world was one big happy double rainbow of happy cheerfulness. Even my happiness was happy. I could’ve chewed glass and gone on with my day like a normal person.

It scared me to death. Anything that makes me that happy was clearly dangerous.

And it is, of course. Vicodin contains an opiate. It’s physically and psychologically addictive.

In theory, I could have just taken them every day, had zero pain and been really happy for a month. But at some point, my body would’ve rewired itself to depend on the chemicals in the medication. Breaking the habit would’ve become more painful than the injury I was treating.

I was terrified of those pills. I probably made the whole bottle last 3 years. They were a weapon of last resort. I only took them when the pain got so bad I wanted to dig my vertebra out with a sterilized butter knife.

I feel the same way about discounts.

Discounts = Vicodin for marketing

Discounts are marketing’s Vicodin. If you need to sell, and need to sell now, they’re not a bad way to get things moving. Used sparingly, they can be of great service.

But discounts rewire the brain of your business, and the brains of your customers.

First, discounts make your business feel happy, by sending you sales. But they don’t necessarily build your brand, attract loyal, lasting customers, or take care of little details like fulfillment and customer service. Your business stops caring. So discounts may get you cash flow while hiding bigger problems: A weak brand, competition, problems at the warehouse, etc..

Second, discounts train customers. If you’re careless, you can quickly turn customers into bargain-hunters. They no longer care about your story or how cool your product/service is. They only care about the discount. You release a new product and they ask, “When will it be on sale?”

So, you run a 10% off sale, and wow, you sell a ton of stuff. You decide to do it again a week later. You sell more stuff. Then you do it again the next week. And so on. Then one day you realize you’re reducing your margins, so you stop offering discounts.

And sales stop.

Your customers are waiting for the next discount. Your business lacks the basic stuff it needs to attract customers, because you’ve spent all your time and energy on those promotions, instead of your selling proposition, your story, or trivial stuff like internet marketing.

Your business is addicted. And withdrawal is going to be ugly. Or fatal.

How to avoid addiction

You can use discounts and not get hooked. Follow three basic rules:

  1. Use discounts to introduce or reward. Don’t use discounts just to build sales. With new customers, make sure you get something in return, like their contact information. Then you’re building a list. Or, use the opportunity to tell them about you and your product. With existing customers, make sure they know this is a reward—a treat for their loyalty.
  2. Avoid the loss leader. I find the strongest business plan focuses on making more money than you spend. Don’t discount so much that you can’t make money. That should be obvious. Ahem. If you’re a huge company, or have lots of cash, maybe you break this rule. But you’d better follow the other two if you do.
  3. Don’t launch with a discount. Never, ever launch a new business with a discount! You have no established identity yet. Don’t make the first thing customers hear about you “We’re cheap!”
tags : conversation marketing

5 Comments

  1. Marc

    Marc

    What are your thoughts on Groupon? Saviour of local business or double rainbow happiness?

  2. Ian

    Ian

    @Marc a total narcotic. I’m writing about them tomorrow.

  3. Travis

    Travis

    As always, your post hit a little too close to home.
    I feel like I am a “social abuser” of discounts. We only offer discounts to our email list. I almost always regret having a sale or discount. For a variety of reasons I don’t want to put in print.
    Recently, we’ve only been offering discounts on items “in stock”. That has helped a little, and it really drove sales on items I wanted to get rid of. Plus, it put a big giant dollar sign in our bank account when it was much needed.
    My main problem is coming up with compelling reasons for customers to read our emails, and actually buy our products. In my experience, any kind of discount will drive traffic, increase conversion rates, and produce sales. Any other message (I don’t care what it is), doesn’t produce any results…unless you count “unsubscribes” as a result.
    Any thoughts on this?
    Thanks,
    Travis

  4. Ian

    Ian

    @Travis It’s about expectations. If you want folks to get e-mails from you that offer information, rather than discounts, you need to invite them to something like a 5-10 part informational series. That way they know what they’re getting.
    What makes your customers nuts/happy about the sport? That’s what you need to deal with. Start by posting writing and video on your own site. Then, as folks sample the goods there, let them subscribe to informational stuff via e-mail. Then do a little sales pitch in each e-mail.
    Hope this helps.

  5. If you want to increase your business, then exceed your customer’s expectations each and every time you serve them, and they’ll be back. The best thing abut that is that they’ll call you! If you sell based on price, your margins will obviously fall, but the additional time it takes to service a discounted sale is generally much greater and they complain about everything. (just to get more discounts the next time) There are a few exceptions to the rule, but not many.

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