Think Before You Give That Next Customer Discount

A few years ago I was lamenting my cable bill with a friend who told me she had recently told her cable company she wanted to cancel her service because, based on how little she watched TV, she couldn’t justify the monthly fee. Rather than lose a customer, the cable company offered a steep discount. I’ve heard of others who have used the same strategy successfully.

I recently came across a Harvard Business Review piece called “The Downside of Discounts,” which reminded me of these cable company discounts. In the post, HBR cited data from Vantage Partners based on a survey of “83 senior sales leaders at Fortune 500 companies across 11 industries.” The data suggested that while discounts may start as a specific deal for one customer – whether based on a customer demand, a quest for greater goodwill or any other reason – these one-off discounts often turned into a discount for ALL customers.

This shouldn’t be particularly surprising. After all, customers talk to one another, something that has likely long been the case with big accounts in the B2B industry. In those markets, there is a relatively small pool of customers, and those customers often know their purchasing counterparts within similar businesses professionally and even personally.

These days, though, in the age of social media, even a fairly large pool of customers can easily compare the prices they’ve been charged and seek out discounts, just as in the cable rate example.

Vantage Partners’ data showed that the most common discount range (48 percent of respondents) was between 10 and 24 percent. Even more interesting was the finding that over half of respondents said that when they discounted their prices, that discounted price became the new “normal” within one year. This is a significant drop in revenue for any business!

My cable story, and the data gathered by Vantage Partners and presented by HBR aren’t to suggest that discounts should never be given; however, marketers, sales executives and other management staff should think carefully about the long-term implications of giving in to even a single customer’s request for “a deal.” The long-term impacts may be more costly than intended.

Recommended Reading:

The Everything Guide to Customer Engagement

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