Hugh MacLeod www.gapingvoid.com is considering repeating the 40% off discount with the Thresher wine stores www.threshergroup.com . Don't do it, Hugh!
Discounting is not the way to build brand value. Charge a fair market price, then work to raise the perceived value of the product and/or service in the mind of the consumer. Discounting may boost sales in the short-run, but it erodes margins, especially if there is a lot of trade-down from existing consumers. Trade-down is nearly impossible to measure, which is one of the problems with discounting; you never really know the true cost.
The real problem with discounting, however, is that it can be addictive and it devalues the brand. It's too easy to lower prices to goose sales. Before you know it, consumers come to expect the discount and you've lost a lot of that hard-earned brand equity that was built up over the years. Some brands never recover it.
Everyday low prices, as opposed to discounting, is a valid strategy, but it's nearly impossible to be successful at such a strategy unless you've got real purchasing power or other distinct cost advantages.
Reference:
http://www.gapingvoid.com/Moveable_Type/archives/003800.html
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