Even though modern marketing tools are accessible to everyone nowadays, due to bad marketing decisions a lot of sales promotions turn out to be counter-productive. Marketing is defined as the methodology of communicating the value of a product/service to customers, for the purpose of selling that product or service.
Today, extensive market research data is becoming rapidly available because of the digital transformation of business and that should be used rapidly and wisely.
- How to conduct a good market research?
- What kind of discount is valuable to both customers and business?
- When to offer a discount and to whom exactly?
- Is it possible that lower prices have a negative effect?
Dr. Jeff Tanner, professor of marketing at Baylor University, points out that despite all new marketing techniques and technology, business profits seem not to be going up.
A study conducted by CBP Research shows that income is increased by up to 40% and selling costs are reduced by 35% with the use of CRM systems (Customer Relationship Management), but the net boost to margin is minimal, so businesses resort to conventional discounting in order to attract customers and increase their revenue.
In order to see the negative effects of rampant discounting and to find a way how to both boost sales and keep the shoppers satisfied, Dr. Tanner carried out an experiment with Cabela’s (the Nebraska retailer of outdoor recreation merchandise). It was noticed by the marketing team at Cabela’s that when online shoppers place a certain product in their basket first (basket starters or FIB’s (first-in-basket), the purchase was more likely to happen.
Customers were divided into two groups and both groups were sent an e-mail offer. The first group got an offer for FIB products at full price and the other group was offered a discount for non-FIB products in their category of interest. The discount for those products was also offered on their web-site for all the other customers.
This resulted with a boost of total income which was four times greater and the experiment has shown success with customers from the first group (customers that were offered FIBs at full price) – besides their FIB products they would also add the products that were put on discount to their baskets.
Higher prices can be interpreted by customers as reflective of higher quality, thus transition to everyday low pricing can turn customers that await discounts and coupons away.
Marketing teams have to bear in mind that customers have a certain perception of value and it needs to remain unharmed by avoiding rampant discounting. Otherwise, offers just may go unnoticed.
The conclusion is that simple and conventional discounting can often have a negative effect on business. New marketing tools, software, and technology are widely available, marketing experimentation is the best way for gathering information and business have to rapidly iterate based on the results.
Create your pricing strategy and test it on a controlled basis to evaluate this hypothesis. Enormous amount of data can be gathered without great expenses and in minimum time span and companies should take advantage of it in creating their own successful marketing plan.