10 Reasons Why Discount Pricing is Bad for Business

If you’re a consultant, expert or provide another type of service, you may be wondering if you should reduce your price to acquire new customers. Here's why it’s a bad strategy and what you should be doing instead.

1. Price is Only Part of the Customer Equation
Price isn’t a customer’s first thought. There’s a lot going on in their minds before they get to that question. Although it may seem like price is their first concern, these come before:

“Does this business understand my problem?”
“Can they solve it?”
“Do I trust them?”
“Do I like their approach?”

Imagining what your prospect is wondering about gives you the opportunity to make the case for your services before getting to the pricing question, “Can I afford it?” It will come up, but the question of price only becomes relevant when they’re considering making the purchase. People will pay if they believe you’re worth it, so use the right language to communicate that you are aware of their need, problem or pain. Then, make your pitch.

2. You’re Going After the Wrong Customers
If your fee is a prospect’s only worry, you may be targeting the wrong market. If the discount is the only reason they hired you, you’ve cheapened yourself and you’ll end up with cheap customers who will always battle for low prices.

3. You Shouldn’t Earn Less than You’re Worth
If you set your price at a certain amount, there should have been a reason for it. If you think you’re worth less, then you should be setting your price lower. Hopefully you’ve done your pricing research before this point — that is, looked into what competitors are charging or at least found out what’s typical for your industry. If you don’t think you’re worth that much, then you should be charging a lower price. If that’s not profitable, then you need to revisit your business model.

If you need help researching prices, this article from Nolo answers the question, How Much Should You Charge for Services?

4. You Don’t Have Enough Clients
I get it. That’s why you’re considering discounts. Think about it this way though. You’ll never recover the time you spent and you won’t be able to make up the shortfall with other customers who pay full price, because you’re not in a volume business. You’re not Walmart. If you’re not busy with client work, you should use the time to promote yourself, come up with new services or research a better target market.

You're not Walmart.

5. Price is Only One Aspect of Marketing
Starting with the right product for the right market is where success begins. One way to do that is to avoid selling naked services at an hourly rate. Instead, create a suite of bundled services, a package with a high perceived value so customers feel they’re getting a good deal. Design it to meet a specific customer need with clearly defined benefits, and offer it at a flat and profitable price.

6. Price is Not a Differentiator
When asked this question, “Why should I buy from you?,” your answer shouldn’t be “Because I’ve got the lowest price.” It should be, “I’m the only one that does X” or “I’m faster or better.” Carving out a differentiated space defends you against competition and may allow you to charge a higher price than the norm, rather than a discounted one.

7. Your Problem is Lack of Awareness, Not Price  
Setting a low or discounted price is only something you do once people know what you can do for them. It’s not the way to let people know you exist. You can generate awareness and leads through a combination of search engine optimization (SEO) and search marketing, advertising, public relations, content marketing and social media to drive traffic to your website.

8. You’ll Lose the Price War
Trying to compete by offering discounts is a downward spiral, a game of how low can you go. You probably don’t have pockets deep enough to outbid your competition.

9. You Get What You Pay For
It’s difficult to make apples to apples comparisons between service providers, so people use price as one indicator of quality. Setting your price too low or discounted could raise eyebrows.   

10. Before Closing the Deal with a Discount, Consider This
There are many ways to get closer to the deal, way before you need to sweeten it with a discount. Consider offering something that doesn’t cost you anything — like a free ebook. Or even a free first :30 phone call — something you may need to do anyway to vet out a prospect. This will give you another opportunity to convince them that you’re the best choice and worth the price.

When a Discount May Make Sense

With so many ways to market yourself, reducing your normal price should be the last on your list. However, there are times when you may want to use discounts:

• When you’re up against a deadline and need to close quickly to recover some of your costs.
• In situations where you want to entice customers to sign up — like for an event early bird special.
• As a final incentive at the tail end of the purchase path. Once you’ve built awareness and fully made your case, it may help you land the bigger fish, but make sure you set clearly defined boundaries around the offer. In fact, if they’re happy with you but can’t afford you in the short-term, consider offering them a payment plan instead.

Related article: Coupons for Business, Pros, Cons, and Tips